29 Sep Impact of the “Create and Grow” Law on the Spanish fund management industry

Law 18/2022, of 28 September, on the creation and growth of companies (hereinafter, the «Create and Grow Law») was published a few days ago in the Official State Gazette (BOE), which introduces, among others, a set of reforms aimed at promoting and improving collective investment and venture capital in Spain; a sector that has experienced a notable acceleration and dynamisation in the last two (2) years and whose proper functioning, necessarily linked to investor protection, benefits economic activity as a whole.

On the one hand, the main amendments introduced in Law 35/2003, of 4 November, on collective investment institutions («LIIC») are as follows:

• The obligation to send the quarterly report is eliminated, this being only voluntary for those prospectuses that so indicate, in which case they must comply with the same requirements indicated for half-yearly information, except in relation to the detail of the composition of the portfolio which, in respect of a maximum of 30% of the assets, may be provided on an aggregate basis or by category.
• Likewise, any communication to participants or shareholders must be sent by telematic means, unless the necessary data have not been provided or a preference has been expressed in writing to receive it physically, in which case it will be sent on paper, always free of charge.
• The possibility is introduced for collective investment undertaking management companies («SGIICs») to take the legal form of a limited company and to extend their corporate purpose to European long-term investment funds («ELTIFs»).

On the other hand, the main amendments introduced in Law 22/2014, of 12 November, which regulates venture capital entities, other closed-end collective investment entities and management companies of closed-end collective investment entities («LECR») are as follows:

• A new vehicle is introduced, the closed-end collective investment undertakings for loans («EICCPs»), which will have as their main purpose investment in invoices, loans, credit and commercial paper commonly used in the commercial trade, and the additional requirements to be met by the management companies managing them are consequently delimited.
• The figure of ELTIFs is included in the scope of application of the LECR, especially those that have their registered office in Spain in the case of companies, that have been incorporated in Spain in the case of funds, or that are marketed in Spain under the regulations governing them.
• Investment in financial institutions whose activity is mainly based on the application of technology to new business models, applications, processes or products is permitted.
• The concept of compulsory investment ratio is extended to include invoices, loans, credit and commercial bills of exchange in the ordinary course of business of companies in which the venture capital entity already has an interest through one of the instruments listed above, up to twenty (20) per cent of the total eligible assets.
• The obligation to comply with the diversification limits for investments in venture capital entities is eliminated.
• Diversification limits on investments in underlying foreign venture capital entities is eliminated.
  underlying foreign venture capital entities.
• The concept of «investable assets» is introduced, replacing «eligible assets», for the purposes of calculating the investment and diversification limits for RCEs and SME RCEs.
• The date of commencement of operations of the CCR is established as the reference date for the purposes of calculating the first three (3) years in which the diversification ratio may be breached by the CCR, provided that this is identified in the CCR’s rules. Otherwise, the period will be computed from the date of registration of the regulations in the relevant CNMV register.
• The possibility is introduced for the Management Companies of Closed-Ended Collective Investment Undertakings («SGEICs») to take the legal form of a Limited Company and, likewise, to extend their corporate purpose to ELTIFs.
• The minimum investment amount for retail investors is reduced, when such investment is in response to a personalised recommendation, provided that, in the event that their financial assets do not exceed 500,000 euros, the investment is at least 10,000 euros, and is maintained, and does not represent more than 10% of such assets.

The Create and Grow Law, in relation to the LIIC and the LECR, will enter into force twenty days (20) after its publication in the BOE (Official State Gazette).