Law 44/2002, ("the Financial Law"), approved by the Lower House of Parliament on November 22, 2002, includes major changes to the Spanish financial system.

First of all, executing this Law, a securities Registration, Clearing and Settlement System Management Company ("Systems Company") has been set up through the merger of the Securities Settlement and Clearing Service (SCLV) and the Spanish Government Debt Book-Entry Trading Central Office (CADE).

This company has included other systems already existing in Spain, such as those for financial derivatives or those managed by the Valencia, Bilbao or Barcelona stock exchanges, and will enable the management of interconnections and alliances with other countries’ stock markets.

One or more Central Counterparty Entities will foreseeably be set up and interposed between the purchaser and the seller to eliminate counterparty risk in transactions and ensure that they are duly completed.

The Settlement and Clearing Systems will be demutualized and a portion of their capital will be placed in the hands of shareholders that do not trade in the market.

Also, changes have been made to the system set up to control the cross-holdings between the companies administering secondary markets and their counterparts outside Spain.This will permit a more flexible system conducive to the integration of cross border markets while simultaneously ensuring a certain control over the appropriateness of shareholders in the Spanish markets.

As regards insurance, securities and collective investment institutions, the exchange of information has been made more fluid by facilitating these procedures between the EU supervisors and those in other countries, while ensuring due confidentiality.

Extensive regulation of the organized trading systems has been introduced in matters such as the authorization system, the obligation to form governing companies with the legal form of corporations (Spanish "S.A." companies) and the supervision and penalty system.

In the credit market, a more flexible investment regime for credit cooperatives has been introduced to make it more similar to that of banks and savings banks.The purpose of this change is to:
– Enable these entities to achieve a larger size, thereby paving the way for increases in their industrial portfolios.
– Facilitate management of their liabilities and equity by means of recourse to subordinated debt financing.

As regards the equity of credit institutions, the regulation of the participation certificates of savings banks, which are treated as marketable securities representing monetary contributions for an indefinite term, stands out.
Participation certificates cannot be issued for a value below their par value and will be listed on organized secondary markets.

Law 44/2002 permits the Spanish State Treasury to be managed through fixed-income security purchases under resale agreement, so that the Treasury can obtain a higher yield on its balance at the Bank of Spain.

A notable event in the insurance industry is that the Insurance Entity Settlement Commission (CLEA) was terminated and its functions taken over by the Clearing Consortium.

The Risk Information Center will be given a more important role, which will be fundamental in the risk control of credit institutions and in the supervision exercised by the Bank of Spain.

The following reforms have been introduced to boost the competitiveness of the Spanish financial services industry:
– "Territorial" bonds have been introduced: These are fixed-income securities issued by credit institutions to local or Autonomous Community governments.
– The scope of operations of collective investment institutions has been broadened: They can perform transactions involving the lending of securities from their own portfolios, organized-market transactions and Over-the-Counter (OTC) transactions.

To improve the terms of SME financing, the use of factoring has been regulated so as to permit large-scale factoring of their accounts receivable from governments.

The following measures have been established to protect the customers of financial institutions:
– Introduction of bodies entrusted with defending the customers of financial services: agencies reporting to the Bank of Spain, the Spanish National Securities Market Commission (CNMV) and the Directorate-General of Insurance and Pension Funds for the express purpose of protecting the rights of users of financial services.
The Regulations were approved by Royal Decree 303/2004 and they establish three types of Ombudsman responsible for resolving complaints, claims or queries by users of financial services:

- Ombudsman for Bank Customers.
- Ombudsman for Investors.
- Ombudsman for Insured and Pension Plan Participants.

The responsibilities of these Ombudsmen include the following:

- Dealing with complaints and claims directly relating to legally recognized interests and rights arising from contracts and from the legislation on transparency and customer protection, as well as from best practices and from good financial practice.

- Checking the information required to verify and confirm the importance of the complaints or claims lodged and collecting the necessary information from the supervisory bodies and entities, for their resolution.They will also be responsible for referring to such bodies and entities any cases which they consider constitute a breach of the rules on transparency and customer protection, and for disclosing the grounds on which the cases are resolved.

- Advising users of financial services on their rights and informing them of the legal procedures for exercising such rights.

- Preparing an annual report.

- Proposing such legislative amendments as they see fit to the competent authority, reporting on implementing regulations under consideration, and reporting on the operating rules of customer care or customer ombudsman departments or services.

- Acting as a liaison and channel of communication with Spanish and foreign institutions and bodies, collaborating with financial institutions to publicize activities explaining the functions of the ombudsmen, and promoting initiatives to raise the users’ awareness of the legislation on transparency and customer protection, and also best practices and good financial practice.

– Obligation of credit institutions, firms providing investment services and insurers to deal with and resolve their customers complaints and claims relating to their interests and rights.

For these purposes, such entities must have a customer care department consisting of an independent entity or expert, whose decisions must be binding.

Ministerial Order ECO/734/2004 regulates the creation of customer care and customer ombudsman departments and services at financial institutions.

The purpose of the customer care department or service is to handle and resolve complaints and claims submitted by customers.This department or service must be separate from the organization’s other operating services and must act in accordance with the principles of speed, security, effectiveness and coordination. It should also be equipped with human, material, technical and organizational resources that ensure adequate knowledge of the legislation on transparency and the protection of financial services customers.

The customer ombudsman is an optional body outside the organization of financial institutions. Its purpose is to handle and resolve the types of claims which are submitted for its decision and to promote compliance with the legislation on transparency and customer protection, and also best practices and good financial practice.

The customer ombudsman must, in turn, act independently from the entity and with full autonomy with respect to the criteria and guidelines that are to be applied in the discharge of his or her duties.

Financial institutions must prepare and approve a set of Customer Protection Rules to regulate the work done by the customer care department or service and by the customer ombudsman, if any, and the relationship between both.

Lastly, the customer care department or service and the customer ombudsman, if any,must issue an annual report or, at least, a summary that must be included in the financial institution’s annual report.

New in 2004 was Law 62/2003, on Tax, Administrative, Labor and Social Security Measures, which introduced the so-called "synthetic" securitization for loans and other claims, characterized by the related credit risk being assumed through the arrangement of credit derivatives with one or more third parties.
The counterparty to the credit derivative must be a credit institution, an investment services company or a nonresident entity authorized to pursue the activities reserved by Spanish Law for such entities.
All other matters concerning such transactions will be governed by the provisions of Royal Decree 926/1998 regulating Asset Securitization Funds and Securitization Managers.