Herve Falciani, a 40-year-old French-Italian, was arrested in Barcelona in July 2012 after he arrived by boat from France.
Switzerland asked for Falciani to be extradited to face charges of violating Swiss banking secrecy laws.
But Spain's High Court denied the request on the grounds that the actions he is accused of are not subject to prosecution in Spain.
Falciani collected data on at least 24,000 customers of HSBC's Swiss subsidiaries from 2006 to 2008 while he worked in the bank's information technology development unit in Geneva which he then passed on to French authorities.
The files, which were subsequently relayed by French investigators to their counterparts in the United States, Spain, Italy, Greece and several other European Union countries, led to a raft of prosecutions.
During his extradition hearing last month Falciani said his intention was to raise the alarm about the bank's activity and denied he sought to sell the information as alleged by Swiss officials.
Spanish prosecutors had opposed his extradition at the hearing.
In December Spain's High Court ordered Falciani's release from jail pending his extradition hearing after the Spanish authorities argued Falciani was cooperating in several European countries in investigations into tax evasion, money-laundering, corruption and terrorism financing.
Falciani fled to France from Switzerland in 2009 while he was under investigation by the bank.