Spain: Securitisation

In recent years the Spanish securitisation market has been very active, with a diverse range of asset classes and players. According to the information published by the Association for Financial Markets in Europe at the end of September 2022, Spain was the fourth European member state with the highest activity in terms of total volume in origination (excluding global Pan-European securitisation transactions).

According to latest data made available by the National Stock Market Commission (Comisión Nacional del Mercado de Valores – the “CNMV”), which is the authority in charge of supervising the securitisation activities in Spain, regarding asset-backed securities, as of the end of September 2022, €17,292.3 billion-worth of securitisation products were issued on the Spanish official secondary markets in 2022.

Banks are the most significant originators in terms of total volume, concentrating more than the 80% of total issuance of securitisation products in Spain.

The Spanish Law 5/2015, of 27 April, on the Promotion of Enterprise Funding (“Law 5/2015”) foresees in article 16 that the asset side of a securitisation fund may be made up of (i) of receivables (derechos de crédito) included in the asset side of the transferor; and (ii) future receivables (derechos de crédito futuros) that generate funds flows which are measurable or quantifiable. In relation to the assignment of future receivables:

• it is necessary that the amount of the collections is already known or estimated; and
• the assignment needs to be formalised in a manner that evidences that the transfer of ownership has taken place.

Additionally, Order EHA 3536/2005 sets out that the transfer of future receivables must meet certain criteria, such as the assignment having to be full and unconditional and certain information that the incorporation deed of the securitisation fund shall specify.

Furthermore, as a general rule, it should be taken into account the ban on resecuritisation foreseen under Regulation (EU) 2017/2402 of the European Parliament and of the Council (the “Securitisation Regulation”). Its article 8 foresees that, in general terms and subject to the provisions therein, the underlying exposures used in a securitisation shall not include other securitisation positions, that is to say that securitisation positions cannot be securitised.

From a practical point of view, the most common receivables that constitute the object of securitisation transactions in Spain are residential and commercial mortgage loans, trade receivables, promissory note receivables, consumer loans, commercial loans and auto loans.

1. National level. Law 5/2015 sets out the legal framework for securitisation transactions in Spain, developing the requisites that securitisation transactions must meet as well as the various alternatives that can be considering when structuring a transaction. The main aspects covered by Law 5/2015 are the following: (i) the vehicle and its incorporation (SPVs used in Spain are FTs, which incorporation is subject to prior compliance of various requirements and prior authorisation by the CNMV); (ii) the nature of the transaction (public and private transactions); (iii) revolving transactions (the FT may subscribe additional financing or add new receivables to its pool of assets; (iv) management of FTs (FTs can only be administered by management companies (sociedades gestoras) which are entities authorised by the CNMV with an ad hoc status); (v) compartments (different issuances of securitisation notes can be made through independent compartments within the same FT); (vi) regulatory authority (the CNMV oversees securitisation transactions in Spain and a registration process must be completed).
2. European level. The Securitisation Regulation applies directly in Spain since 1 January 2019. The Securitisation Regulation develops several rules that apply to all types of securitisation transactions. In particular, it establishes the rules on due diligence, risk retention, disclosure requirements, and the framework for simple, transparent and standardised long-term securitisations and asset-backed commercial paper programmes. Additionally, Regulation 575/2013 of the European Parliament and the Council applies to banks participating in securitisation transactions.
3. Other national level regulations shall be analysed and observed on a case-by-case basis, depending on the asset class or the characteristics of the securitisation transaction, such as the following:
   • Royal Decree-Law 4/2015 of 23 October 2015, approving the consolidated Securities Market Act (“Ley del Mercado de Valores”).
   • Order EHA 3536/2005.
   • Law 16/2011 of 24 June 2011 on consumer loans.
   • Autonomous region legislation regarding consumer protection law.

The issuance in Spain of securitisation notes can only be performed through a Spanish securitisation fund (fondo de titulización, an “FT”) governed by Law 5/2015, which is a special purpose vehicle without legal personality with the sole purpose of acquiring the credit rights transferred by a seller with the proceeds of an issuance of fixed income securities (securitisation notes) or other debt instruments.

An FT is an independent economic unit made up primarily of the assigned receivables and the securitisation notes, having a predetermined term after which their assets will be liquidated and the liabilities discharged, up to the value of the asset proceeds.

FTs lack of legal personality itself and therefore, only specialised management companies called Sociedades Gestoras de Fondos de Titulización (“Securitisation Fund Management Companies”) can handle the incorporation and the management of the FT, as well as the legal representation of such FT.

Securitisation Fund Management Companies must be public limited companies duly authorised by the CNMV. They can only have the purpose of incorporating, managing and representing FTs, seeking in the best interest of the noteholders who have acquired from time to time the securitisation notes issued by the relevant FT.

The CNMV publishes on its website a list of the authorised Securitisation Fund Management Companies.

Law 5/2015 foresees in article 25 that Securitisation Fund Management Companies may also incorporate, manage and represent securitisation vehicles having its domicile outside Spain (and special purpose vehicles similar to Spanish FTs) in accordance with the applicable legislation of the relevant jurisdiction governing the vehicle.

The incorporation of an FT is subject to the prior compliance of the following requirements:

• formal request to the CNMV;
• approval by the CNMV and registration of:
  • the incorporation deed;
  • certain supporting documents regarding the assets to be pooled in the FT; and
  • any other supporting data or documents that the CNMV may require;
• an audit on the assets of the transaction must be performed either by the managing company or by an external audit. However, this requirement may be waived by the CNMV considering the structure and circumstances of the transaction. For instance, in STS securitisations this requirement is usually waived based on article 22.2 of the Securitisation Regulation; and
• approval by the CNMV and registration of a prospectus (folleto informativo). However, as further developed in question 8 below, a prospectus will not be required if:
  • the securitisation notes are not intended to be listed in the Spanish official secondary markets; and
  • they are exclusively addressed to qualified investors (ie, when it is a private FT).

A market standard securitisation transaction will involve the following parties:

• The FT as special purpose vehicle issuing the securitisation notes.
• The Securitisation Fund Management Company. Its purpose is to incorporate, manage and represent the FT.
• The originator who assigns the rights to FT and the end-user of the funds raised in the securitisation.
• The placement agents and/or the underwriters. This role is usually performed by credit institutions or investment banks which place the securities in the market, control the status and evolution of the demand, fix the final price (in agreement with the originator), structure the transaction and draft primary documentation.
• The servicer. who will manage the underlying assets of the transaction in accordance with the terms agreed in the deed of incorporation of the FT and, if any, a servicing agreement. In this regard, is common that the originator also retains the servicing of the assets (specially when it comes to the securitisation transaction in the banking industry).
• The investors. These are typically institutional investors (i.e. pension funds, mutual funds, financial institutions, hedge funds, etc.). Restrictions shall apply for the subscription or acquisition of securitisation notes for non institutional or qualified investors.
• The meeting of creditors (Junta de acreedores). Under Spanish law there is the possibility of setting up a meeting of creditors (Junta de Acreedores), which is a committee of creditors in the context of a particular transaction that constitutes an additional protection for investors.

In this regard, note that Spanish law does not include the figure of the trustee, which is recognised under common law.

The CNMV is the public authority in charge of supervising securitisations in Spain. Its main functions, among others, are the following:

• Authorisation and registration process of Spanish FTs. Except for private FTs, whose verification by the CNMV occurs after its incorporation based on a new fast-track process implemented by the CNMV.
• Authorisation of Securitisation Fund Management Companies.
• National competent authority for the purposes of supervising compliance of due diligence, risk retention and disclosure requirements under the Securitisation Regulation for originators which are not under the supervision of Bank of Spain. However, originators are mainly Banks, therefore, subject to the regulatory supervision of the Bank of Spain.
• National competent authority for the purposes of supervising compliance with the new framework for STS (simple, transparent and standardised) securitisations under the Securitisation Regulation.

See question 4 above for regulatory and other limitations for FTs and Securitisation Fund Management Companies.

1. Sell-side.
   1. Originators. Under Spanish law, the general rule is that originators do not require any specific license. However, without prejudice to the general rule:
      1. lenders other than credit institutions, which deal with consumers in mortgage-secured loans, must register with a public registry (which is kept by the autonomous regions for Spanish companies and by the National Consumers’ Institute for non-Spanish companies acting in Spain); and
      2. pursuant to article 25 of the Securitisation Regulation, the role of originator under asset-backed commercial papers is limited to certain credit institutions. Additionally, these credit institutions will have to be liquidity facility providers and cover all credit and liquidity risks associated with the transaction exposures.
2. Service providers.
   1. Underwriters and placement agents. The placement activity is regulated under article 144 of the Securities Market Law. Consequently, entities acting as placement agents will need to be registered either with the CNMV or the Bank of Spain.
   2. Servicers. No particular regulatory license is required to perform servicers activities under Spanish law. However, the entity in charge of servicing will vary in accordance with the underlying assets nature to be transferred to the FT.
      1. For real estate mortgage-backed loans, Spanish law establishes the legal obligation for the originator to retain the custody and administration of those assets.
      2. For other asset classes, the Securitisation Fund Management Company has the legal obligation to manage the assets transferred to the FT. However, this function can be delegated to the originator (in practice, this is established through the deed of incorporation or by means of a servicing agreement).
3. Buy-side. The common market practice is to offer securitisation notes only to professional and qualified investors, due to the general restrictions for retail investors to invest in certain financial products, although Spanish securitisation regulation has not established specific restrictions applicable to investors.

Yes, see question 3 above.

Yes. Law 5/2015 distinguishes between private and public securitisations.

1. Public funds. In accordance with article 22.5 of Law 5/2015, FTs classified as public funds must meet the following requirements:
   1. prior notice to CNMV by the Securitisation Fund Management Company of the project of incorporation of the FT;
   2. filings prior to incorporation of the FT to be provided to CNMV:
      1. draft of the public deed (escritura pública) of incorporation of the FT,
      2. any documentation deemed necessary for the identification of the potential pooled assets transferred to the FT, and
      3. any documentation requested by CNMV in connection with the incorporation of the FT; and
   3. verification and filing with CNMV of the prospectus of public offering.
2. Private funds. The FT will be established upon the execution of its public deed escritura pública of incorporation, and the specific date is set therein. In accordance with article 22.4 of Law 5/2015, the incorporation of a private FT does not require a prospectus, and only a filing with the CNMV’s Official Registers of the public deed escritura pública of incorporation is required. The aforementioned public deed escritura pública of incorporation will be executed before a Spanish public notary by duly authorised representatives of the Securitisation Fund Management Company and the originator.

See questions 4 and 6 above in relation to registration, authorisation or other filing requirements applicable to participants in securitisation transactions.

Pursuant to Article 34 of Law 5/2015, Securitisation Fund Management Companies shall publish the following information on their websites, for each of the FTs they manage:

• the incorporation deed and any other subsequent deeds;
• the prospectus and any supplements thereto, if applicable; and
• the annual/quarterly reports. In connection with the quarterly reports, Securitisation Fund Management Companies must present it to the CNMV within two months following the end of each calendar quarter.

Additionally, according to article 35 of Law 5/2015, Securitisation Fund Management Companies must submit the relevant FT’s annual financial statements, together with the auditors’ report, to the CNMV for its registration within four months following the end of the FT’s financial year.

On the other hand, FTs are generally subject to the disclosure requirements envisaged under the Securitisation Regulation. Particularly, in public securitisations pursuant to the Securitisation Regulation, a securitisation repository – ie, an entity duly registered for that purpose with the European Securities and Markets Authority (“ESMA”) – will keep track of the disclosures to be made by the relevant reporting entities in accordance with article 7(1) points (a), (b), (d), (e), (f) and (g). The means of disclosure for private securitisations is not regulated. In accordance with ESMA’s guidelines “absent any instructions or guidance provided by national competent authorities, reporting entities are free to make use of any arrangements that meet the conditions of the Regulation.”

The EU rules which develop the Securitisation Regulation are the following:

• The Commission Delegated Regulation EU 2020/1224, which establishes the information and the details to be made available, and
• the Commission Delegated Regulation EU 2020/1225, which provides the format and standardised templates for making such information available.

The risk retention applicable legal framework has been harmonised across the European Union through article 6 of the Securitisation Regulation.

In accordance with article 6 of the Securitisation Regulation, the originator/sponsor/original lender (in case of loans) is obliged to retain a material net economic interest of not less than 5% of the nominal value of the securitisation (the “Retention Risk Threshold”). The calculation of the Retention Risk Threshold is to be made at the origination date and it must be determined by notional value for off-balance sheet items. Such Retention Risk Threshold must be retained throughout the life of the FT. In particular, the Retention Risk Threshold cannot be sold, divided between different retainer nor subject to any credit-risk mitigation, short positions or any other kind of hedging strategy.

Article 6 of the Securitisation Regulation foresees alternative procedures to comply with the risk retention requirement.

Although Law 5/2015 does not foresee specific obligations for investors regarding the need to conduct due diligence processes, article 5 of the Securitisation Regulation lays down certain due diligence obligations for institutional investors. Those obligations will vary depending on the country of incorporation of the originator of the underlying exposures comprise (this is, where it is a European entity or not).

Securitisation participants potentially subject to penalties under Law 5/2015 are Securitisation Fund Management Companies, FTs, originators and servicers. Additionally, not only breaching legal entities may be subject to penalties. Also, the governing body and administrators of the breaching participant may be subject in a personal capacity to, among others, pecuniary sanctions, bans, temporary suspensions, etc., which may vary in accordance with the seriousness of the breach.

Under Law 5/2015, breaches of regulatory obligations are classified into those considered moderate (article 41), serious (article 40) and very serious (article 39).

The penalties for breaching regulatory obligations are set forth in Law 35/2003, of November 4, of Investment Funds (“Law 35/2003”). The nature of the penalty varies in accordance with the seriousness of the breach and Law 35/2003 foresees different penalties. The most relevant penalties are pecuniary sanctions, revocation of authorisation, temporary exclusions, bans and public reprimands.

Yes. The issuance of securitisation notes subject to Spanish law can only be performed through an FT (fondo de titulización)) governed by Law 5/2015. This restriction applies if the securitisation transaction is governed by Spanish law.

However, “choice of law” clauses are commonly used in cross-border securitisations in which the originator is a Spanish company. In cross-border transactions, it is possible to use special purpose vehicles (other than FTs) incorporated under the laws of foreign jurisdictions.

According to the Royal Legislative Decree 1/2020, of May 5, approving the recast of the Insolvency Law, as amended by Law 16/2022, of 5 September (the “Insolvency Law”), the declaration of an insolvency situation requires those who are insolvent have the status of debtor, which is linked to the status of a legal subject – this is, a natural or legal person, which the FT lacks. Therefore, the FT itself could not be the subject of insolvency proceedings.

There are no specific means by which the bankruptcy-remoteness of an FTis made, other than establishing the following aspects in the relevant prospectus and/or the deed of incorporation of the FT:

• that the FT is governed under Law 5/2015, as a separate estate of assets and liabilities devoid of legal personality;
• that the FT is an ad hoc vehicle only designed to carry out securitisation transactions – expressly rejecting the ability of the FT entering into other transactions other than those foreseen in the prospectus and the deed of incorporation;
• that the assignor has an unqualified opinion from its auditors of its last two financial years financial statements;
• in order to mitigate any set-off risk derived from retail banking activities, the seller usually includes a written undertaking holding the FT harmless for any set-off performed by a debtor against the receivables;
• since it is customary that the originator transferring the receivables continue to perform the servicing duties of such receivables, standard back-up servicer events shall be established linked to the servicer’s rating or insolvency proceeding; and
• an accounts provider replacement event shall be included, usually linked to the long-term deposit rating.

The most frequently used material forms of credit enhancement in Spanish securitisation transactions, in no particular order are: (i) subordination through splitting the notes issued into tranches; (ii) the use of reserves (cash or highly liquid investments); (iii) excess yield on the underlying assets; (iv) letters of credit and liquidity facilities in periods of liquidity shortfalls; (v) hedging instruments (especially interest rate swaps and cap agreements); (vi) over-collateralisation; and (vi) reverse accounts and spread accounts.

The transfer of assets is done by agreement between assignor and assignee. However, to achieve a ‘true sale’ under Spanish law, the transfer of assets must observe a number of features, which are mainly the documentation of the transfer as a notarial document either as a public deed (escritura pública) for mortgage-backed loans, or as a deed (póliza) for other asset classes.

With regards to mortgage-backed loans, to achieve the effectiveness vis-à-vis third parties of the transfer/assignment and ensure the enforcement of the mortgage before the Spanish courts, the transfer/assignment of a mortgage-backed loan must fulfil two requirements: (i) it must be executed in a public document before a Spanish notary public (as mentioned above); and (ii) it must be registered within the relevant Land Registry. Additionally, if the loan is secured by a mortgage or a non-possessory pledge over movable assets, the two conditions mentioned above (public document and registration) will apply as well. However, the registration shall be within the Movable Assets Registry (“Registro de Bienes Muebles”) instead of the Land Registry.

On a related note, the legal due diligence in a securitisation transaction reviews, among others, the transferability of the pooled receivables to the FT. Customarily, the receivables include a clause allowing the assignment/transfer of the receivables by the lender without requiring the consent of the borrower.

With regards to notification to the borrowers, under Spanish law, it has the following legal implications:

• Perfection: the notification of the transfer of the receivables is not a legal requirement for perfection of the said transfer. However, until the borrower is notified that the receivables have been transferred, a borrower will be legally discharged of its obligations for payments made to the original lender, and will be able to set-off obligations against the original lender, pursuant to Article 1,198 of the Civil Code (this can be an issue if the original lender performs retail banking, although some mitigants can be structured).
• Consumer protection: autonomous regions have introduced legislation in the field of consumer law that imposes an obligation on assignors to send a notification disclosing certain information. Generally, the lack of notification may not have an effect on the perfection (or enforceability) of the transfer, but it can trigger administrative sanctions and reputational risks. An ad hoc review shall be made on a case-by-case basis due to the rapid development of this kind of legislation.

See questions 15 and 17 above.

Yes. Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 (the “GDPR”) and the Spanish Data Protection Act (“SDPA”) establish specific restrictions on the processing and transfer of personal data (ie, any information relating to an identified or identifiable natural person).

The applicable legal framework for data protection has been unified across the European Union after the entry into force of GDPR. In general, the processing of personal data is subject to the following legal requirements: (i) the person has given consent to the processing of personal data; (ii) the processing is necessary for the performance of a contract to which the person is a party; (iii) the processing is authorised by law; (iv) the processing is necessary to protect the vital interests of the person; (v) the processing is necessary for the performance of a task carried out in the public interest or in the exercise of official authority; (vi) the processing satisfies a legitimate interest of the controller or the party to whom the personal data is transferred, provided that the person’s fundamental rights and freedoms are respected.

Additionally, when the data is transferred outside of the European Economic Area, it will be subjected to the requirements established in Chapter V of the GDPR and Chapter VI of the SDPA.

The conduct of credit rating agencies is regulated through the unified European legislation, mainly after the entry into force of Regulation (EC) No. 1060/2009 (“CRA”) which has been amended by Regulation (EU) No 462/2013, on credit rating agencies (“CRA III”).

Furthermore, CRA designated ESMA as the European public authority in charge of overseeing the registration of credit rating agencies and supervises their activities. To achieve effective regulatory control by ESMA, European financial institutions are only allowed to use the credit ratings issued by a credit rating agency which is certified or registered with ESMA.

In connection with structured financial instruments (ie, securitisation transactions, among others), CRA III envisages the obligation for any issuer, sponsor or originator to appoint a minimum of two (2) independent credit rating agencies (with the recommendation to appoint a credit rating agency with less than 10% of the total market share). However, according to Law 5/2015, the granting of a credit rating to the securitisation notes does not constitute a legal requirement to validly incorporate an FT – although, it is market practice in Spanish securitisation transactions to assign ratings to notes issued under a public securitisation.

Yes. A case-by-case analysis of taxation considerations needs to be performed for securitisation transactions in Spain. In particular, with regards to the following taxes:

1. Value-added tax (VAT):
   • The FT can be considered an entrepreneur for VAT purposes. However, as FTs carry out VAT-exempt activity, they are not entitled to deduct any input VAT.
   • The transfer of receivables would be a supply of services for VAT purposes, which would be deemed to be located in the place where the recipient of the services is established for VAT purposes.
   • Services rendered by the seller to the purchaser would be considered a separate transaction.
2. Stamp Duty Tax: provided that the assignment of the receivables is formalised by means of a public deed (escritura pública) and meets certain requirements (ie, mortgage-secured loans), the assignment shall be subject to stamp duty. On a related note, the incorporation and winding-up of the FT is not subject to stamp duty tax.
3. Capital Duty Tax: the incorporation of the FT is subject to but exempt from Capital Duty Tax.
4. Corporate Income Tax (“CIT”): The FT is subject to the general provisions of the CIT Law. However, the FT’s CIT taxable base is generally close to nil as its financial income (interest earned from the receivables) offsets its financial expenses (interest paid to the noteholders). However, certain specific CIT features need to be analysed on a case-by-case basis.
5. Withholding of taxes: whether the payments on the receivables made to a non-Spanish tax resident purchaser by Spanish obligors would be subject to withholding taxes in Spain depends on the characterisation, for tax purposes, of the income received by the purchaser, and on the jurisdiction where the purchaser resides for tax purposes. Thus, a case-by-case study needs to be performed when analysing potential withholding of taxes.

There are no specific hurdles for global or cross-border transactions other than the taxation considerations explained in question 21 above.

In Spain the most common reference rate is EURIBOR which calculation and determination is subject, from 2018, to Regulation (EU) No. 2016/1011 of the European Parliament and of the Council (the “Benchmark Regulation”), and the entity in charge of the administration of such benchmark is the European Money Markets Institute (the “EMMI“).

The Spanish securitisation market has not shown changes i in the use of IBOR rates for the financial year 2022. Having said that, issuance prospectus and deeds of incorporation of FTs of those securitisation transactions in which the notes are subject to floating rates include fallback provisions that would trigger the modification of the original reference rate.

The securitisation market in Spain has a well detailed and favourable regulation that, in general, promotes and facilitates the implementation of securitisation transactions under Spanish law. Additionally, five years after the entry into force of the Securitisation Regulation, the European market seems to be more harmonised. However, Q&As and interpretations of the local or European institutions will be always well received to avoid any overlap or misalignment between the two sources of legislation, and, thus a more reliable market for investors and originators, mainly in cross border transactions.

We have not seen a big impact in Spain as a result of COVID-19 for securitisation transactions and legislation on the matter.

Notwithstanding the foregoing, it should be mentioned that because of the COVID-19 global pandemic, new legislation was enacted in Spain with specific measures to combat the social and economic impact of the disease’s outbreak. More precisely, certain moratoriums were established for rental, mortgage loan and unsecured loan payments in favour of lessees or debtors which were in a vulnerable economic situation.

Likewise, in terms of soft law, non-legislative moratoriums were agreed by many credit institutions in Spain implementing more flexible requirements for borrowers to qualify for a moratorium.

Aside from the measures mentioned above, no material legislation for securitisation has been approved in Spain.

See question 17 above.