The New CNMV Is In A Hurry To Update The Financial Markets; Increases Reform Drive


It was on the cards that new Stock Market Regulator (CNMV) chairman, Sebastián Albella, was not just taking over the job to keep the seat warm. Maybe because of his career or his management style, it was thought he would be a fairly hands-on manager and a reformer. And that’s what’s happening. Perhaps even more than was expected.

Despite the fact the new CNMV board has only been in charge since the end of November 2016 (five months), it has already implemented a battery of measures which some people think are dramatic.

In just a few weeks, it has launched measures and recommendations which are so different. Like sending its Technical Guide for public consultation, in order to evaluate the knowledge and abilities of the personnel who inform and advise clients investing in financial institutions. Then a new regulation to avoid companies manipulating their shares under the umbrella of treasury stock, the possible restriction on the sale of CFDs, forex and binary options, and even a list of 10 pieces of advice for investors so they can avoid shady financial setups.

All this in addition to asking ACS for an explanation regarding the remuneration received by its board members, including that of chairman Florentino Perez, as well as calling into question a whole series of accounting indicators used by companies, like EBITDA, which it believes are deceptive.

Some of these measures, if they are consolidated and don’t end up being watered down, could increase the level of security for investors and change the financial environment in Spain. For example, it’s the first time that a guide has been drawn up in Spain, with indications on what kind of training people should have who work in banking and the financial sector and advise clients on financial products: so complete that it even outlnes the hours of training needed and the type of institutions, careers or courses which are valid for these professionals.

The same could be said about its decision to tighten up the operational process for providing liquidity for shares. The aim of this is to avoid companies using this system to distort prices (manipulating stocks). The measure was implemented via a circular which regulates the requirements, so listed companies can use this resource to increase their stock market activity.

The CNMV has also got its radar on CFDs and other complex products in which, according to the regulator, minority investors “systematically lose money.” Its quarterly bulletin explains the range of possible measures to protect the investor and assures that it “doesn’t rule out” limiting the sale of these products to non-qualified investors. This is in line with the road map for this year outlined in March by Albella.

The CNMV’s complaint is that both in Spain and in other European countries, certain financial intermediaries are selling more and more complex and risky instruments to minority investors: CFDs, forex products and binary options.

Other measures are mere recommendations or warning calls for the sector. For example, the case of the recent polemic over EBITDA and other accounting terms which the CNMV consider as deceptive, given that they don’t even figure in the International Regulations for Financial Information nor in the General Accounting plan for Spain.

That said, we will have to wait for a few months to see if Albella and his team are capable of maintaining this pace of reform. And, even more important, if these measures are successful and they are turned into efficient regulations and procedures for disciplining the market.

When analsying the new team’s reform drive we also have to bear in mind that this has arrived at a time when new international regulations are being put in place. These have to be transferred to each country and are aimed at avoiding new episodes like those which happened over the last few years, both in Spain and across the globe. This is the case of the MiFID II, approved in 2014, which has obliged the speeding-up of the so-called Technical Guide. This will come into force on January 1, 2018 and its objective is to avoid bad practices in savings and investment products.

Then we also have to remember that some of the measures being implemented by the new team were inherited from the previous one. These are initiatives which were studied, implemented and are now being looked at more in-depth. This is the case of the famous traffic light circular or the so-called Mystery Shopping, initiatives which date back to the days of Elvira Rodríguez.

For example, with respect to the “traffic light” of financial products’ risks, which gives a list of the “dangerous” or “avoidable” ones, the CNMV has decided to prepare a new circular to complete the previous recommendation. This is because the previous one was “insufficient”, according to financial experts themselves.

Another novelty, which comes from before, has been the activity of the so-called spy or mysterious inspectors, who visit institutions incognito to ‘buy’ products; this is the “Mystery Shopping.” Despite being approved by the previous CNMV, it was just this year that this model was put into practice under the new team. The CNMV has made 450 visits on the part of 179 ‘mystery clients’ to a range of institutions representing 50% of the banks’ branches.

The inspectors discovered that, despite the banking sector’s claims that it is now being very careful with the sale of financial products, “the employees in the branches frequently emphasised their advantages, making too little reference to their risks.”

Some might think the intense rhythm and conviction of the new team’s reform drive shows up the previous team, led by Elvira Rodríguez from 2012-2016. It’s evident that the former chairwoman had a different style, was more conciliatory with the financial world and, frequently, let things pass which you could see were not being done properly.

That said, nobody believes this was due to any kind of connivance with sector institutions,  but more to that kind of prudence which, in the financial world, leads to reforms being implemented gradually and with a steady hand.

Entering this world of money like a bull in a china shop frequently brings heartache and failure. And, finally, we shouldn’t forget that Albella arrived just at the time when the CNMV was calling for a radical change, also because there is a demand for this in Spain amongst investors and savers. The CNMV needs to meet its commitment to finally making the Spanish financial market trustworthy.

After the wave of financial scandals in the last few years – preference shares, Bankia IPO, Gowex… – there was a clear need to redesign the CNMV’s function and make its procedures more strict.

About the Author

Fernando Barciela
Fernando Barciela has been a regular collaborator for Spain's leading daily El Pais' business section since 1994. He is also a regular collaborator on foreign policy. For Grupo Consejeros he interviews the top executives of Spain's listed companies. He was a correspondent with Diario de Noticias, Portugal's leading daily newspaper, in 1987-2004. He has a degree in Business Science and Journalism from the Complutense University.