Banking Law and Eurobond Regulatory Framework in Spain

Introduction

Eurobonds are internationally issued debt securities commonly offered to institutional and professional investors across several jurisdictions. Despite the name, a Eurobond does not necessarily have to be denominated in euros or issued within the European Union. The term traditionally refers to bonds distributed internationally, often outside the issuer's domestic market.

For Spanish banks, Eurobonds can serve several purposes. Banks may issue international senior debt, covered bonds, subordinated instruments or other securities to obtain medium- and long-term funding. They may also act as arrangers, underwriters, dealers, investment-service providers, custodians or investors in Eurobond transactions.

There is no single Spanish "Eurobond Law." Instead, Eurobond activity is governed by a combination of EU securities legislation, Spanish securities-market law, banking regulation, prospectus requirements, market-abuse rules, MiFID II/MiFIR, prudential rules and contractual documentation.

Spain's current core securities legislation is Law 6/2023 of 17 March on Securities Markets and Investment Services, while the CNMV is the principal Spanish securities-market supervisor. EU rules provide much of the substantive framework.

Legal Nature of Eurobonds

A Eurobond normally represents a contractual debt obligation of the issuer. Investors provide capital to the issuer and receive contractual rights to repayment of principal and, where applicable, interest.

International issues commonly involve several participants, including:

the issuer;

guarantors;

arrangers and dealers;

paying agents;

fiscal agents or trustees;

clearing systems;

listing authorities;

investment firms; and

institutional investors.

The applicable legal framework therefore depends on factors such as where securities are offered, whether they are admitted to a regulated market, the category of investors targeted, the governing law of the securities and the issuer's regulatory status.

Spanish Securities Markets Law

Law 6/2023 on Securities Markets and Investment Services is Spain's principal securities-market framework.

It regulates matters including the issuance and offering of financial instruments, trading venues, registration and settlement infrastructure, investment firms, investment services and CNMV supervisory responsibilities.

Consequently, when a Spanish bank issues or distributes Eurobonds, the transaction may involve both banking regulation and securities regulation.

The CNMV has an important role where securities are publicly offered in Spain or admitted to trading under circumstances requiring regulatory supervision.

EU Prospectus Regulation

One of the most important instruments is Regulation (EU) 2017/1129, known as the Prospectus Regulation.

Generally, a prospectus may be required where securities are offered to the public in the EU or admitted to trading on an EU regulated market, unless an exemption applies.

A prospectus should provide investors with information necessary to make an informed assessment of matters such as the issuer's financial position, prospects, risks, securities and rights associated with those securities.

The framework contains important exemptions. For example, certain offers directed exclusively at qualified investors or securities having sufficiently high denominations can fall outside particular public-offer prospectus requirements.

Where required in Spain, the CNMV can perform the competent-authority role concerning prospectus approval. Importantly, approval concerns compliance with applicable prospectus standards; it should not be interpreted as a guarantee that the bond is financially safe.

MiFID II and MiFIR

Directive 2014/65/EU (MiFID II) and Regulation (EU) No. 600/2014 (MiFIR) are important when banks and investment firms distribute or trade Eurobonds.

The framework covers areas including:

investor protection;

organizational requirements;

conflicts of interest;

product governance;

suitability and appropriateness;

execution of customer orders;

market transparency; and

reporting requirements.

MiFID II is particularly relevant where a Spanish bank sells bonds to customers or provides investment advice.

A bond's status as an internationally issued instrument does not eliminate investor-protection requirements.

Market Abuse Regulation

Regulation (EU) No. 596/2014, the Market Abuse Regulation (MAR), can apply where the relevant jurisdictional and trading conditions are satisfied.

MAR addresses insider dealing, unlawful disclosure of inside information and market manipulation.

A bank issuing traded debt instruments can possess inside information affecting the value of those instruments. Procedures concerning disclosure, confidentiality, insider lists and market conduct can therefore become relevant.

Market manipulation rules can also affect secondary-market activity in bonds.

Banking Prudential Regulation

A Eurobond issued by a Spanish bank can also have prudential significance.

Depending on its contractual characteristics, bank debt may potentially qualify within different parts of the institution's capital and liability structure.

Senior unsecured debt, subordinated debt and regulatory capital instruments do not necessarily receive identical treatment.

The Capital Requirements Regulation and Capital Requirements Directive framework therefore interacts with securities law where bank-issued debt is intended to satisfy regulatory funding or capital objectives.

Bank Resolution and Bail-In

The Bank Recovery and Resolution Directive (BRRD) and the EU Single Resolution Mechanism are especially important for bank bonds.

Certain bank liabilities can potentially be written down or converted during resolution, subject to the applicable statutory framework and hierarchy.

Eurobond investors therefore need to understand that bank debt is not automatically equivalent to an ordinary corporate bond.

The ranking of the instrument, contractual terms and resolution legislation can materially affect the investor's position if the issuing bank fails.

The resolution of Banco Popular provides an important Spanish example of how investor rights, securities disclosure and bank-resolution legislation can interact.

Important Case Laws

1. Bankia SA v Unión Mutua Asistencial de Seguros, Case C-109/20

The CJEU considered liability associated with an inaccurate prospectus in circumstances involving an investor that was a qualified investor.

The Court recognized that prospectus information can remain relevant even where securities are acquired by qualified investors in a mixed offering.

Relevance to Eurobonds: Spanish issuers cannot assume that sophisticated or institutional investors automatically make prospectus accuracy irrelevant. Material disclosure should be reliable regardless of investor sophistication.

2. Hirmann v Immofinanz AG, Case C-174/12

The CJEU considered investor remedies arising from defective information in securities markets.

The Court accepted that EU company-law principles did not necessarily prevent an investor from obtaining remedies where investment decisions were based on incorrect information.

Relevance: Accurate securities disclosure is fundamental to Eurobond markets. Issuers may face legal consequences where legally required information is materially defective.

3. Kolassa v Barclays Bank plc, Case C-375/13

This case involved an investor who had acquired a financial instrument and alleged defective prospectus information.

The CJEU considered jurisdiction over claims associated with prospectus liability and investment losses.

Relevance to Eurobonds: International securities can connect issuers, intermediaries and investors across several jurisdictions. Consequently, jurisdiction can become a major preliminary issue before substantive liability is determined.

4. Löber v Barclays Bank plc, Case C-304/17

The CJEU again considered jurisdiction in litigation involving investment certificates and allegedly defective information.

The judgment examined connecting factors relevant to determining where financial damage occurred.

Relevance: Cross-border bond distribution creates significant private-international-law issues. Issuers and distributors should consider potential litigation exposure in jurisdictions connected with investors and distribution.

5. Vereniging van Effectenbezitters v BP plc, Case C-709/19

The case concerned investor claims based on allegedly incorrect or incomplete information disclosed to financial markets.

The Court considered jurisdiction where investors claimed losses resulting from inaccurate market information.

Relevance to Eurobond regulation: International securities disclosure can produce litigation beyond the issuer's home jurisdiction, particularly where instruments circulate through interconnected European markets.

6. Banco Santander – Resolution of Banco Popular II, Joined Cases including C-794/22

These proceedings arose from Banco Popular financial instruments that had ultimately been converted into shares before the institution's resolution.

The CJEU addressed the relationship between investor claims and the EU bank-resolution framework.

Relevance: Investors in bank-issued debt need to understand that ordinary securities-law remedies can interact with special resolution rules where instruments are converted, written down or otherwise affected by resolution measures.

7. Banco Santander – Resolution of Banco Popular III, Case C-687/23

This case involved subordinated bonds that had been converted into Banco Popular shares before resolution and a claim alleging defective information associated with the original acquisition.

The CJEU examined how the BRRD's write-down and resolution provisions affected claims pursued against Banco Santander as successor.

Relevance: The case demonstrates the complex interaction between prospectus-related investor remedies and the special legal consequences of bank resolution.

8. Genil 48 SL and Comercial Hostelera de Grandes Vinos SL v Bankinter SA and BBVA SA, Case C-604/11

This Spanish reference concerned MiFID investor-protection requirements relating to financial products and investment services.

Although it was not specifically a Eurobond case, it established important principles concerning the application of MiFID obligations.

Relevance: Spanish banks distributing complex bond products must correctly determine applicable investment-service obligations and cannot treat product documentation as a substitute for MiFID conduct requirements.

Prospectus Liability

Prospectus liability is particularly important in international bond markets.

Investors depend heavily on disclosure because they ordinarily cannot independently inspect every aspect of the issuer's business.

Material information may include:

financial statements;

indebtedness;

regulatory capital;

significant litigation;

credit risks;

guarantees;

ranking of the bonds;

interest and redemption provisions;

default provisions; and

material risks affecting repayment.

False, misleading or materially incomplete information can potentially generate regulatory and civil consequences under applicable law.

Professional and Retail Investors

Many Eurobond issues are primarily designed for institutional investors.

High denominations and qualified-investor structures can affect prospectus requirements and distribution arrangements.

However, secondary-market distribution can create additional issues if instruments eventually reach retail customers.

A bank distributing a complex bond to retail investors must consider MiFID II requirements, including product governance and, where applicable, suitability or appropriateness assessments.

The fact that an instrument was originally issued to professional investors does not automatically make every subsequent retail distribution appropriate.

Credit Ratings

Eurobonds are frequently rated by credit-rating agencies.

EU rules governing credit-rating agencies seek to promote integrity, transparency and independence in rating activities.

Nevertheless, a credit rating is an assessment rather than a guarantee of repayment.

Banks and investors should therefore conduct appropriate independent risk assessment rather than treating a rating as conclusive evidence of creditworthiness.

Clearing and Settlement

International bonds commonly use sophisticated clearing and settlement arrangements.

Spanish securities may also use Spanish market infrastructure, including book-entry systems and Iberclear, depending on the structure of the issuance.

The relevant documentation should identify how ownership interests are recorded, how payments are transmitted and how securities are transferred.

Legal certainty concerning settlement is essential because Eurobonds can be held through several layers of intermediaries.

Governing Law and Jurisdiction

International Eurobond documentation frequently contains governing-law and jurisdiction provisions.

A Spanish issuer may issue securities governed by Spanish law or, depending on the structure, another permitted legal system.

However, selecting foreign governing law does not necessarily eliminate mandatory EU or Spanish regulatory requirements.

Prospectus regulation, market-abuse rules, investor-protection requirements and prudential obligations can apply independently of the contractual governing-law clause.

Taxation

Eurobond structures also involve tax considerations.

Payments of interest can raise questions concerning withholding taxes, investor residence and double-taxation arrangements.

Bond documentation commonly contains detailed taxation provisions and may contain tax-related redemption or gross-up mechanisms.

Tax treatment depends on the precise characteristics of the issuer, investor, instrument and transaction and should therefore be distinguished from securities-law regulation.

Sustainable and Green Eurobonds

Spanish banks increasingly participate in green, social and sustainability-linked bond markets.

Where environmental characteristics are advertised, issuers should ensure that sustainability representations are accurate and appropriately documented.

The European Green Bond Regulation adds another European framework for issuers choosing to use the European Green Bond designation.

Greenwashing can create regulatory, investor-protection and reputational risks.

CNMV Supervision

The Comisión Nacional del Mercado de Valores (CNMV) plays a central role in Spain's securities markets.

Its responsibilities in relevant bond transactions can include supervision of primary-market disclosure, prospectuses, investment firms, market conduct and investor protection.

A prospectus requiring approval must contain information enabling investors to evaluate the issuer, guarantor where relevant, and rights attached to the securities. EU-approved prospectuses also operate within the Prospectus Regulation's cross-border framework.

Conclusion

The Eurobond regulatory framework in Spain is based on an interaction between Law 6/2023 on Securities Markets and Investment Services, the EU Prospectus Regulation, MiFID II, MiFIR, the Market Abuse Regulation, prudential banking legislation and the BRRD/SRM bank-resolution framework.

Spanish banks can participate in Eurobond markets as issuers, guarantors, arrangers, distributors, dealers and investors. Each role creates different regulatory responsibilities.

The cases of Bankia v Unión Mutua (C-109/20), Hirmann v Immofinanz (C-174/12), Kolassa v Barclays Bank (C-375/13), Löber v Barclays Bank (C-304/17), VEB v BP (C-709/19), Banco Santander/Banco Popular II (including C-794/22), Banco Santander/Banco Popular III (C-687/23), and Genil 48 v Bankinter and BBVA (C-604/11) illustrate important principles concerning prospectus liability, investor remedies, jurisdiction, MiFID obligations and bank resolution.

The central principle is that the international character of a Eurobond does not place it outside Spanish or European financial regulation. Where a Spanish bank issues, markets or distributes such securities, it must consider disclosure, investor protection, market integrity, prudential requirements, resolution risk, clearing and settlement, and cross-border legal obligations throughout the life of the instrument.