Investment Services Companies (ISCs): Legal Framework and Operational Keys in Spain

Investment Services Companies (ISCs) play a crucial role. Regulated by the Securities Market Law and the Investment Services Law, these entities are central to providing investment services and conducting professional investment activities for third parties.

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What are Investment Services Companies (ISCs)?

ISCs are companies whose primary activity is to provide investment services or conduct professional investment activities on behalf of third parties involving financial instruments. These companies must adopt one of the legal forms established, which we will examine when analyzing the Classes of ISCs.

Investment Services and Activities

ISCs are authorized to perform a wide range of investment services and activities, including:

• Reception and transmission of client orders: Acting as intermediaries, they facilitate connections between investors for executing transactions.
• Execution of orders on behalf of clients: They carry out transactions in the name of their clients.
• Dealing on own account: They operate in the market using their own capital.
• Portfolio management: They manage the financial assets of their clients.
• Investment advice: They provide personalized recommendations to their clients.

Ancillary Services

In addition to investment services, ISCs can offer ancillary services, such as:

• Custody and administration of financial instruments: They are responsible for the safekeeping and management of clients’ assets.
• Granting of credits or loans to investors: They provide financing for the execution of transactions.
• Advice to companies on capital structure and mergers and acquisitions: They offer strategic consultancy to companies.

Classes of Investment Services Companies

The law distinguishes four main types of ISCs:

• Securities Companies: They can perform all investment and ancillary services and activities.
• Securities Agencies: They operate on behalf of others, with certain limitations on the services they can offer.
• Portfolio Management Companies: They focus on portfolio management and investment advice.
• Financial Advisory Companies: They exclusively provide investment advisory services.
• National Financial Advisory Companies: They have the same functions as the previous ones but with limitations on their operations in other EU member states and lower capital requirements.

Exceptions and Non-Applicable Cases

It is important to note that not all entities that engage in activities related to the securities market are considered ISCs. The law establishes a series of exceptions, including:

• Insurance and reinsurance entities.
• Persons who provide investment services exclusively to their parent companies or subsidiaries.
• Credit institutions, which have their own regulation.

Prudential Requirements

Some ISCs, depending on their size and activity, are subject to specific prudential requirements similar to those of credit institutions. The National Securities Market Commission (CNMV) has the authority to supervise and regulate these aspects.

Reservation of Activity and Denomination

The law protects the denominations of ISCs, reserving them exclusively for authorized entities. This ensures transparency and prevents confusion among investors.

Agents of Investment Services Companies and National Financial Advisory Companies

ISCs can designate tied agents for the promotion and marketing of their services, always under their responsibility and supervision.

Conclusion

ISCs are fundamental pillars of the Spanish securities market, providing a wide range of investment services and activities. Their regulation, supervision, and proper functioning are essential to ensure market stability and transparency.

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