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Spanish new legal framework for mortgage services business: challenges and opportunities

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Ruiz Bachs Salvador
Salvador Ruiz Bachs

Partner

Madrid

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Ferrer-Bonsoms Sergio
Sergio Ferrer-Bonsoms

Associate

Madrid

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17 June 2019

On 29 April 2019 the Spanish government approved Royal Decree 309/2019, which develops certain key areas of Law 5/2019, which regulates real estate credit. Although the main purpose of these new rules is to regulate consumers’ rights in connection with mortgage loans and similar arrangements (see The new Real Estate Credit Act client alert issued by A&O in this regard), they also set out a new regulatory licensing framework for non-financial entities that provide credit, mortgage loan brokerage, and mortgage loan advisory services.

This affects both domestic players and entities acting on a cross-border basis. This new Royal-Decree will enter into force on 16 June, save for certain exceptions.

Unlike in other countries, in Spain the entire relationship with consumers in the mortgage market has traditionally been with credit institutions. The role of non-bank actors, brokering and advisory agencies was residual. This has recently been starting to change, and this new legislation could be a further step in that direction.

It is important that companies currently providing (or planning to provide) any of the above services become aware of the new legal framework. Affected companies, amongst others, are: traditional mortgage brokers who plan to expand their business into Spain, non-bank lenders who deal in real estate loans, fintech platforms that deal in intermediation of financial services, etc. Please note that this regime applies to entities when they are not otherwise regulated under a wider licence, such as credit institutions, specialised financial lenders (establecimientos financieros de crédito), and payment services/e-money providers.

Registration obligations for lenders and intermediaries resident in Spain

A new registry under the direction of the Bank of Spain is created for credit providers, brokers and advisors who act either (i) in several regions within Spain or (ii) from other countries on a cross-border basis. The registry obligations for entities acting only in one region within the Spanish territory will remain under the competence of their own autonomous authorities.

Registration of new Spanish entities is not subject to a full-fledged authorisation procedure, but the competent authorities will perform certain checks before allowing the filing process to go ahead. In particular they will check that:

  • a professional liability insurance/guarantee is in place (for intermediaries);
  • they have adequate procedures and capacity to assess the solvency of potential borrowers (for lenders);
  • they have sufficient means to deal with complaints from customers;
  • they have been duly registered with the anti-money laundering (AML) authorities; and
  • they have a satisfactory training plan for their employees.

Furthermore, intermediaries’ and lenders’ directors (or individuals who perform these activities on a freelance basis) will be checked to ensure that they have:

  • sufficient knowledge and competence as required by law;
  • appropriate standards of honour and suitability;
  • no relevant criminal record; and
  • no record of mismanagement in the context of a previous insolvency proceeding.

Passport for cross-border services

Mortgage brokers, advisors and lenders who are duly authorised to carry out such activities in their home Member State may apply for registration on the basis of a communication to their home authority. In this case, the Bank of Spain will rely on the home State organisational requirements (with some exceptions, e.g. AML reporting). However, conduct of business and borrower protection rules will be those set out in Spanish law.

This is substantially similar to the “EU passport” procedure that is commonly used for other types of regulated institutions. Cross-border services can be provided both with and without a permanent establishment (branch).

Supervision

Once registered, lenders, advisors, and brokers will be subject to a supervisory regime overseen by the Bank of Spain. This is a new feature, although it is certainly a much lighter burden than the supervisory requirements for other types of regulated institutions (banks, payment providers, etc.).

The supervisory regime mainly covers the proper conduct and information obligations towards consumers (please see our newsletter on the Real Estate Credit Act here). The Bank of Spain will have competence to review if an intermediary or lender is generally complying with the borrowers’ protection rules. It may also take any preventive measures to ensure compliance.

Supervisory action can evolve into potential sanctions. The Bank of Spain is competent to conduct a sanctioning proceeding on the basis of its supervisory findings. Depending on the gravity of the breach, the sanction may amount to significant monetary fines and even the removal of their license to operate. Board members may be individually liable in some cases too.

In the case of entities acting on a cross-border basis, the Bank of Spain is also competent to cooperate with the Home State authorities and the European Banking Authority in the supervision of their activities in Spain.

For those interested in expanding their mortgage services business into Spain, the new legislation presents challenges, but also opportunities. The rules that are now entering into force include certain new obligations and supervisory powers, but they also set a clear and trustworthy legal framework, including a passport regime. This could be a good ground to further develop the Spanish market, and to encourage foreign actors to enter it.

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