Spain: Financial Credit Establishments - New Insurance Brokers

Last 28 April 2015 the Spanish Official Gazette published the Act 5/2015, dated 27 April 2015, on Promotion of the Corporate Finance. One of the modifications introduced by Act 5/2015 was the new legal regime envisaged for Financial Credit Establishments (EFCs), entities created to carry out specific credit and loan operations (such as leasing, factoring, payment services, consumer credits, mortgage loans, issuance of credit cards, etc.), but not allowed to obtain deposits from their customers and that have different capital requirements to those established for credit entities.

  • Moreover, the Forth Final Provision of Act 5/2015 modifies Section 25 of the Spanish Act 26/2006, dated 17 October, on Insurance and Reinsurance Private Mediation (LMSRP), by equating these EFCs to a typically Spanish kind of Insurance Broker, the Bancassurance Brokers.
  • Consequently, EFCs are now allowed to sell insurance products offering a new path for insurers to distribute insurance products and a way to reach a new kind of client typically reached only by these EFCs (consumers and little companies looking for "fast" credits and loans).
  • Nevertheless, Act 5/2015 prohibits EFCs to sell insurance products as a condition for their customers to obtain a credit or a loan. With this provision Act 5/2015 permits this kind of entities to enter the Insurance Mediation Sector, but protects the customers from aggressive ways of cross-selling.
  • This opportunity for EFCs to enter the insurance sector as a Bancassurance Broker is the last consequence of the European aim to unify certain regulations (and Regulators faculties) involving the insurance sector and the financial sector.
  • In this regard, article 24.11 of MiFID II Directive stated that ESMA, in cooperation with EBA and EIOPA, shall develop by 3 January 2016, and update periodically, guidelines for the assessment and the supervision of cross-selling practices.
  • This provision joint to the Regulation concerning Insurance-Based Investment Products ("PRIIPs"), evidences the everyday bigger aim of the European Union to unify three different sectors (Capital Markets, Banking and Insurance) in order to protect the consumers of very specialized and complex products such as PRIIPs.
  • For that reason, Act 5/2015 also envisages in its Sixth Additional Provision that the Spanish Government will study the need to unify the claims services currently separated for Bank of Spain (Banking Regulator), CNMV (Capital Market Regulator) and DGSFP (Insurance Regulator).
  • In brief, these entities (EFC), typically financial, can now enter the insurance market and Spanish insurers have now an additional way to distribute their products. A way which will let them reach a very specific kind of client.

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