Banking Regulation 2022

Last Updated September 22, 2021


Trends and Developments


finReg360 was incorporated in 2016 and is devoted to advising financial entities. It combines a high degree of specialisation with a holistic view of the regulatory issues to facilitate compliant services and provide business-driven advice. finReg is the only Spanish law firm focused on the financial sector, with talented professionals with nearly 400 years of cumulative experience . The firm advises all types of financial players, both foreign and Spanish, in the fields of securities markets, banking and finance, payment services, insurance, collective investments, private equity, ESG, cryptocurrencies, anti-money laundering and corporate governance. Given the importance of data management and disruptive technologies like blockchain, the data privacy practice is a key part of the services the firm provides. In almost five years of operation, finReg has assembled Spain’s largest and most experienced team devoted to providing regulatory advice in the financial sector.

Banking Regulation in Spain

In 2021, the Spanish financial sector saw numerous regulatory changes that share common goals in the shifting landscape, including:

  • introducing innovation in investment and banking services, while also ensuring investor protection;
  • driving the post-COVID economic and financial recovery; and
  • moving toward a more sustainable economy.

This article highlights the main trends and developments that impact traditional business models from a regulatory perspective.

First, we analyse some of the developments that aim to incorporate investor protection in new business models and services (with the regulatory sandbox or the Bank of Spain register for crypto-asset service providers) and to increase competition amongst payment services (with the connection of payment and electronic money institutions to the Spanish payment system).

The Regulatory Sandbox in Spain

Early in 2021, the Spanish financial sector welcomed the first cohort under the regulatory sandbox after its entry into force in November 2020, under Law 7/2020 for the digital transformation of the financial system. The first cohort received 68 access requests and admitted 18 projects. The Spanish sandbox arrived with perfect timing to position Spain as the EU’s innovation hub in a post-Brexit scenario and in the midst of the COVID-19 recovery process. For financial entities and start-ups, the Spanish sandbox provides market visibility, which is key to positioning in an increasingly competitive and concentrated market.

To boost innovation in the financial sector, the sandbox regulates a testing environment where market players test new innovative business models with real clients under the rules established in the protocol agreed with the relevant supervisor.

The Spanish sandbox is open not only to Spanish start-ups and financial institutions, but also to international players. For admission to the Spanish sandbox, projects must provide a technology-based innovation that is applicable to the financial system and sufficiently advanced to be tested (eg, a prototype with minimum functionality to verify usefulness), and that adds value to existing uses in at least one of the following aspects:

  • facilitates regulatory compliance;
  • benefits users by reducing costs or improving service quality;
  • boosts the efficiency of entities or markets; or
  • improves regulation or enhances supervisory mechanisms.

Three financial supervisors participate in the Spanish Sandbox:

  • the Spanish Securities Market Commission (CNMV);
  • the Bank of Spain; and
  • the Insurance and Pensions Authority (DGSFP).

These entities decide which projects are accepted on a preliminary basis. Once accepted, the participant and the supervisor agree to a protocol that will detail the scope of the testing, its duration, phases and goals, the number of clients, and the volume of trades. This protocol is key for the functioning of the sandbox, and must be signed within three months of the project’s initial acceptance. Once testing is finalised, the results will be taken into consideration for the granting of financial authorisation or licensing, if necessary. Regardless, participants gain valuable experience and the knowledge necessary to define a business strategy or launch the product or service.

Crypto-assets: Registry Requirements

Spanish regulation on cryptocurrency services is very recent, and the provision of these services is still unregulated in many respects.

In April 2021, the implementation of the Fifth AML/CFT Directive by Royal Decree-Law 7/2021 in Spain covered services related to cryptocurrencies for the first time, with the latter legislation having the following features:

  • includes "providers of exchange services between virtual currencies and fiat currencies, and custodian wallet providers" as parties obliged to prevent money laundering and terrorist financing (AML/CFT); this obligation to meet AML/CFT requirements is already in force; and
  • creates a registry at the Bank of Spain in which the following providers of such services must be registered:
    1. natural or legal persons providing residents in Spain with exchange services between virtual currencies and custodian wallet providers;
    2. natural persons providing such services, where the direction and management of the activities are exercised in Spain (as defined in the implementing regulation), regardless of the location of the service recipients; and
    3. legal entities established in Spain that provide these services, regardless of the location of the recipients.

Royal Decree-Law 7/2021 establishes that the current providers of these cryptocurrency services must register with the Bank of Spain registry before 29 January 2022. Providing services without registering with the Bank of Spain will constitute a very serious infringement. Registration may be requested through the Bank of Spain’s virtual office.

In March 2021, the Spanish Securities Market Act (SMA) was amended to introduce section 240 bis, granting the CNMV oversight of crypto-asset marketing materials, when presented as an investment. This new CNMV authority is not yet in force, as a regulation (Circular) must be approved in order to exercise this power. In June 2021, the CNMV issued a draft Circular on the advertising of crypto-assets for public consultation. Approval of this Circular is expected in late 2021 or the first quarter of 2022.

In July 2021, the Spanish Antifraud Act introduced new tax reporting obligations for providers of crypto-asset exchange services between fiat currency services and crypto-asset custody services residing or with permanent establishment in Spain.

Spain will continue to take steps to regulate crypto-asset-related activities, and will strive to adapt to the proposed European Regulation of Markets in Crypto-Assets (MiCA), which aims to create a harmonised European regulatory framework in crypto-asset markets.

Iberpay and Connection to the Spanish Payment System

The European Union’s adoption of the payment services framework known as PSD1 in 2007, and PSD2 in 2015, has served as grounds for the emergence of new players that are reshaping the payment industry, adopting innovative solutions to reach a broader market, promoting competition and enhancing the end user experience. However, this paradigm shift will not be complete until payment institutions and electronic money institutions can access payment systems with their own International Bank Account Numbers (IBANs). In this context, experience shows that institutions with non-Spanish IBANs face practical operational issues when operating in Spain.

The new regulation adopted by the Spanish National Electronic Clearing System for payments (Sistema Nacional de Compensación Electrónica – SNCE) entered into force on 16 December 2020. The SNCE is the Spanish payment system, as recognised by Spanish Act 41/1999 of 12 November 1999 on payment and securities settlement systems, which implements Directive 98/26/EC on settlement finality. The SNCE was managed by the Bank of Spain until 2005, when the role was assumed by Iberpay (Sociedad Española de Sistemas de Pago, S.A.).

At present, payment institutions (PIs) and electronic money institutions (EMIs) are unable to access the SNCE directly under Act 41/1999, since the SNCE’s participant entities are limited to credit institutions (apart from certain public institutions). A proposal to amend Act 41/1999 in this respect was included in the initial draft to implement PSD2 in Spain, but was ultimately omitted.

Therefore, the amendments introduced by Iberpay in the SNCE regulation aim to align it with the objectives pursued by PSD2 and provide PIs and EMIs with better access to the Spanish payment system. In this context, PIs and EMIs also include those licensed in other EU Member States and duly authorised to provide services in Spain.

As a result of the changes introduced in the SNCE regulation, PIs and EMIs can become indirect participants in the SNCE through the credit institutions that are direct participants in the payment system. For these purposes, PIs and EMIs must have a Bank Identifier Code (BIC) and a credit institution designation as an “accessible entity”. In addition, the designating credit institutions may also authorise PIs and EMIs to submit and receive transactions directly via the SNCE, in its name and on its behalf. Regardless, direct participants will serve to settle their payments.

Although Iberpay does not play a role in the issuance of Spanish IBANs, through its “IBAN File” service it provides SNCE members and entities represented in the system with the IBANs of PIs and EMIs, enabling other participants to identify and recognise these IBANs.

In addition, IBAN File makes it possible to obtain the BIC of the entity to which the transaction is addressed (along with complementary information on that entity) from the IBAN of the duly validated account. Thus, the institution using IBAN File achieves a substantial increase in the percentage of straight-through processing (STP).

In an effort to facilitate change, several credit institutions are currently working to designate PIs and EMIs as indirect participants in the Spanish payment system. While some banks that are deeply committed to gaining a foothold in the payment market may not be interested in affording PIs and EMIs access to the SNCE, the business models of other Spanish banks focus on providing these services and serving these new players.

Secondly, the provision of financial services is facing new realities such as Brexit, which have changed how the Spanish market is accessed, and local initiatives to open up access to certain instruments.

Boosting Spanish Private Equity and Expected Improvements in Retail Distribution

Public and private sector support for private equity, the search for profitable investments and diversified portfolios, the appetite for impact investments given environmental, social and governance (ESG) trends, and the talent of managers have all contributed decisively to the flourishing of the Spanish private equity market.

Institutional investors concentrate major portfolios in private equity, but interest in this asset class is growing every day among medium and high net worth retail investors, given the current low returns on traditional assets because of historically low interest rates. Moreover, as they are not directly linked to market performance, these investments allow for better portfolio diversification.

The only thing missing is a decisive boost to the current legal framework, which still requires some improvement, despite having contributed to this success. For these purposes, it is essential to facilitate retail investors’ access to this asset class.

Currently, there are asymmetries in the marketing of private equity products, depending on the nationality of the product: non-Spanish products, even those from the European Union, can only be marketed to professional investors, but Spanish products can be marketed to retail investors with a minimum investment of EUR100,000.

The regime for distributing this type of asset to retail investors is expected to soon become more flexible. The proposal to amend the Spanish regulation on collective investment schemes to allow retail clients to invest in Spanish hedge funds with a regime similar to that of European long-term investment funds (ELTIFs) is a precedent the Spanish regulators are expected to follow. The Ministry of Economy and the CNMV have already publicly endorsed this approach.

In addition, it is important to clarify whether this asset class can be marketed as a foreign vehicle, which the authorities have not yet done. This regulatory arbitrage reduces the available products in Spain, which harms competition and, in the long run, compromises the quality and price of the products that Spanish investors can access.

Another issue to be addressed is the meaning of “professional investor”, as the current definition is outdated and does not reflect the reality of the financial market. Under Spanish law, in addition to financial institutions, public authorities and large companies that are professional investors, only those that meet two of the following three conditions may qualify as professional investors:

  • those that have conducted significant transactions in the relevant market, averaging ten per quarter in the previous four quarters;
  • those that hold a portfolio of financial instruments exceeding EUR500,000; and
  • those that have held a professional position in the financial sector requiring knowledge of such investments for at least one year.

These requirements are extremely rigid. Practical experience shows that even the most active private equity investors do not conduct this many investments in a given year and, naturally, only a small percentage of potential investors work in the financial sector. It can be agreed that investors must have experience in order to be considered “professional” but, by this definition, very few qualify as such.

Brexit: National Private Placement Regime

The national private placement regime (NPPR) is the alternative mechanism foreseen in Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers (AIFMD) that permits the marketing by non-EU Alternative Investment Funds Managers (AIFM) of Alternative Investment Funds (AIF) in the European Union without a passport. To that end, Article 42 of the AIFMD establishes that the following conditions must be met to allow non-EU AIFMs to market to professional investors:

  • non-EU AIFMs must comply with certain obligations under the AIFMD, including:
    1. the transparency requirements in Chapter IV, including the obligation to publish the annual report of each AIF;
    2. the disclosure obligations to investors (information on the AIF, etc) and reporting obligations to competent authorities; and
    3. compliance with the obligations applicable to AIFs that acquire control of non-listed companies and issuers;
  • a co-operation arrangement must be signed by the competent EU authority where the AIFM is marketed and the third country where the AIFMD is established; and
  • the third country must not be listed as a Non-Cooperative Country or Territory by the Financial Action Task Force (FATF).

As per the above regime, when the Brexit transition period ended on 31 December 2020, the United Kingdom became a third country and the requirement to sign a co-operation agreement between the UK and the different EU supervisors was activated.

The UK’s decision to leave the EU was followed by the preparatory work carried out in 2020 at a European level to reduce the impact on financial markets, such as the equivalence decisions adopted on UK Central Counterparties or Depositaries. In Spain, Royal Decree Law 38/2020 of December 29 (RDL) implemented adaptation measures at the conclusion of the Brexit transition period and regulated issues related to the provision of investment services. However, no co-operation arrangement has been signed between the CNMV and the Financial Conduct Authority (FCA) to permit AIFMs in the UK to market non-EU AIFs.

Therefore, since 1 January 2021, firms that are domiciled in the United Kingdom and authorised to provide investment services in Spain have been subject to the regime established in the SMA and other sectoral regulations for firms in third countries.

However, this RDL established a temporary authorisation system, under which the authorisation or registration initially granted by the competent British authority remained valid provisionally, until 30 June 2021, in order to carry out the necessary activities for an orderly termination or transfer – under the contractual terms and conditions envisaged – of the contracts concluded prior to 1 January 2021 to firms duly authorised to provide financial services in Spain.

Currently, UK firms must apply for a new authorisation to enter into new contracts, to renew contracts concluded prior to 1 January 2021, to incorporate amendments that involve the provision of new services in Spain or affect the essential obligations of the parties, or when the activities linked to the management of said contracts require authorisation.       

Additionally, UCITS or AIFs that failed to normalise their situation by 31 December 2020 are subject to ex officio de-registration by the CNMV.

Therefore, entities may continue to operate in Spain, subject to prior authorisation, by setting up a subsidiary investment firm, in accordance with the provisions of the consolidated text of Title V, Chapter II of the SMA regarding investment firms, or under the third-country regime regulated in Title V, Chapter III, Section 2 of the SMA (sections 171 and 173) and in Title I, Chapter V, Section 2 of Royal Decree 217/2008 of 15 February (sections 28 ter and 29 bis, ter and quater).

Entities wishing to benefit from the third-country regime must request the relevant authorisation, based on whether the investment services provided in Spain are carried out through the establishment of a branch or under the freedom-to-provide-services regime.

It is important to note that, without exception, the third-country regime requires the establishment of a branch in Spain where the third-country company intends to provide investment and ancillary services to retail and professional clients under section 206 of the SMA. Based on the volume of activity or the complexity of the products or services, or for reasons of general interest, the CNMV may also require a third-country entity to establish a branch even if it intends to trade only with eligible counterparties and professional clients (as per section 205 of the SMA). The CNMV considers the normal scenario to be that which requires the establishment of a branch.

Finally, Spain is experiencing the first effects of ESG integration in the EU financial markets.

The mobilisation of finance towards long-term sustainable growth is one of the European Union’s main priorities for the coming years. The European Supervisory Authorities (ESAs: EBA, ESMA and EIOPA) and the European Commission are developing a comprehensive regulation package that aims to incorporate ESG factors into the provision of investment services. The package consists of more than ten legislative proposals with different implementation dates and various regulatory technical standards (RTS) that have not yet been approved.

The main challenges of ESG integration include the need to determine whether a given economic activity is environmentally sustainable and to define a harmonised taxonomy. In this respect, the first milestone was the 2020 approval of Regulation (EU) 2020/852 on the establishment of a framework to facilitate sustainable investment (known as the Taxonomy regulation), which also clarified whether given economic activity can be considered sustainable.

Another key element is the 2021 entry into force and application of Regulation 2019/2088 on sustainability-related disclosures in the financial services sector (known as SFDR). In Spain, the CNMV defined a new simplified procedure to update the fund prospectus and facilitate compliance with new transparency requirements.

Additionally, the CNMV published a Q&A document on SFDR and Taxonomy, which includes the CNMV’s interpretation criteria of the following aspects, among others:

  • Funds wishing to qualify as financial products under Article 8 of SFDR may include ESG elements in their name if the percentage of investments promoting environmental or social elements exceeds 50%.
  • Funds registered as “Social Responsible Investment” (SRI) may continue to use the SRI features that they promote in their commercial name.
  • Only financial products referred to in Articles 8 or 9 of SFDR may use ESG elements in commercial communications.
  • The CNMV cites certain information that must be included in pre-contractual documentation under Articles 8 and 9 of SFDR until the technical standards for the development of the SFDR Regulation have been approved.

Spanish entities and those that market products in Spain must adapt their policies and procedures to comply with CNMV criteria. This is a challenge for entities in scope, not only because they face new obligations, but also because they must make strategic decisions while considering supervisory criteria in Spain.

The most noteworthy development in 2022 will be the entry into force of the MiFID II, IDD, Solvency II, UCITS and AIFMD amendments. Investment firms, insurance companies and fund managers will be required to incorporate sustainability risks and factors in their internal organisational processes, including the management of risks and conflicts of interests, and especially the integration of clients’ “sustainability preferences” in suitability tests and the product’s target market. The challenge for Spanish financial entities is to review the product offer in order to meet the clients’ sustainability preferences, including sustainable products.

Entities are currently considering which new issues to include in the suitability tests and awaiting further clarification from the CNMV. It is foreseeable that the CNMV will publish new Q&As to resolve matters open to interpretation concerning these regulations, in addition to SFDR/Taxonomy.

In this context, financial entities will increasingly be required to consider ESG factors in their business models, not only to properly address global sustainability challenges and regulatory requirements, but also to prevent any potentially detrimental future impact on business reputation. The existing and upcoming frameworks are a great challenge for financial entities, which must keep up and be prepared to comply with the new regulatory requirements, but it is also the perfect opportunity to secure positioning in a financial market with increasing interest in sustainable investments.


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Trends and Development


finReg360 was incorporated in 2016 and is devoted to advising financial entities. It combines a high degree of specialisation with a holistic view of the regulatory issues to facilitate compliant services and provide business-driven advice. finReg is the only Spanish law firm focused on the financial sector, with talented professionals with nearly 400 years of cumulative experience . The firm advises all types of financial players, both foreign and Spanish, in the fields of securities markets, banking and finance, payment services, insurance, collective investments, private equity, ESG, cryptocurrencies, anti-money laundering and corporate governance. Given the importance of data management and disruptive technologies like blockchain, the data privacy practice is a key part of the services the firm provides. In almost five years of operation, finReg has assembled Spain’s largest and most experienced team devoted to providing regulatory advice in the financial sector.

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