An extract from The International Capital Markets Review, 11th Edition


Although the Portuguese economy had been recovering strongly since the end of the global financial crisis, the covid-19 pandemic has seen economic recovery in Portugal – and across the world – grind to a halt. Industrial production has contracted sharply and the unemployment rate has increased, while benchmark rates are headed towards new record lows. The pandemic has created acute funding needs for corporate entities and financial institutions, which have also had to increase loan loss provision. Public support has been widespread, with institutions such as the European Central Bank implementing asset purchase programmes and other measures aimed at mitigating the pandemic's effects on businesses and households. The covid-19 pandemic has dominated the political, regulatory and business agenda of Portuguese public and private entities for the greater part of 2021 (as it did in 2020), but hopes of economic recovery are strong, boosted by the support package put together at EU level.

The Portuguese capital markets framework is substantially in line with European legislation, which has been responsible for greater harmonisation across the European Union. Notwithstanding, specific domestic laws and regulations may apply to specific instruments, their form of representation and transactions. Regulations issued by the Portuguese Securities Market Commission (CMVM), the Portuguese central securities depository Interbolsa and Euronext Lisbon should also be considered, since these national regulatory authorities may condense, adapt and interpret European legislation with a certain level of discretion.

The Securities Code (enacted by Decree-Law No. 486/99, as amended) establishes the framework for financial instruments, offers, financial markets and financial intermediation and has been the statute used to transpose a variety of important European directives (including any amendments thereto) into national law, such as the Shareholders' Rights Directive,2 the Transparency Directive,3 the Takeover Directive,4 the Settlement Directives5 and the MiFID II Directive.6 Other relevant statutes include the Companies Code (PCC) (as enacted by Decree-Law No. 262/86, as amended, which governs the corporate rules on shares and bonds) and the Credit Institutions and Financial Companies Framework (enacted by Decree-Law No. 298/92, as amended, also heavily amended to transpose or adjust to EU legislation).

A considerable number of new or revised regulatory frameworks have affected the Portuguese capital markets during 2021, including:

  1. the new Regulation (EU) 2021/337 of the European Parliament and of the Council of 16 February 2021, amending Regulation (EU) 2017/1129 as regards the EU Recovery Prospectus and targeted adjustments for financial intermediaries and Directive 2004/109/EC as regards the use of the single electronic reporting format for annual financial reports, with a view to supporting recovery following the covid-19 pandemic. Among other things, key changes in this context include:
    • from 18 March 2021 to 31 December 2022, a waiver of the obligation to draw up a prospectus to offer securities to the public or for their admission to trading on a regulated market, where the total aggregate consideration in the European Union for the securities offered is less than €150 million per credit institution calculated over a period of 12 months (subject to other specific requirements);
    • introduction of the EU Recovery Prospectus as a short-form prospectus that addresses the economic and financial issues specifically raised by the covid-19 pandemic;
    • from 18 March 2021 to 31 December 2022, and further to other legal amendments, where the prospectus relates to an offer of securities to the public, investors are entitled to withdraw their acceptances, within three working days (instead of two working days) after the publication of the supplement; and
    • for financial years beginning on or after 1 January 2020, all annual financial reports shall be prepared in a single electronic reporting format, provided that a cost-benefit analysis has been undertaken by the European Supervisory Authority;
  2. Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability‐related disclosures in the financial services sector (as amended and supplemented by Regulation (EU) 2020/852 of 18 June 2020 on the establishment of a framework to facilitate sustainable investment) (SFDR) entered into force in respect of the level-1 disclosures. The second stage of the SFDR – the level-2 disclosures – is expected to enter into force at the beginning of 2022. In-scope asset managers and financial advisors will have to start disclosing ESG factors periodically and align their disclosures with the EU Taxonomy Regulation and the regulatory technical standards (RTS) currently being drawn up by the Commission and the European Supervisory Authorities;
  3. Decree-Law 50/2021 of 30 July on the extension of the moratorium for mortgage loans, consumer credit and for beneficiaries operating in sectors particularly affected by the covid-19 pandemic, in cases where beneficiaries were already covered by the moratorium from 1 October 2020 (instead of 30 September 2021) to 31 December 2021. This framework shall be subject to the reactivating of the regulatory and supervisory framework established by the EBA guidelines of 2 April 2020 on payment moratoria;
  4. Decree-Law No. 70-B/2021 of 6 August, establishing protective measures for banking clients who are covered by exceptional and temporary credit protection measures, such as a moratorium for mortgage loans or consumer credits, which stipulates that credit institutions, financial companies, payment institutions and electronic money institutions that have entered into credit agreements concerning real estate secured by mortgage or consumer credit agreements shall perform a special monitoring process on banking clients who have benefited, before the entry into force of Decree-Law No. 70-B/2021, from an exceptional credit protection measure under Decree-Law No. 10-J/2020 or a private general moratorium on payments and which also allows banking clients who benefit or have benefited from exceptional credit protection measures to have access to, and be included in, the extrajudicial procedure for the regularisation of default situations; and
  5. Regulation (EU) 2020/873 regarding certain adjustments to the Capital Requirement Regulation (CRR)7 in response to the covid-19 pandemic (the CRR Quick Fix),8 which applied from 27 June 2020, with the exception of the amendments to the calculation of the leverage ratio, which applied from 28 June 2021. The purpose of the CRR Quick Fix is to encourage banks to continue lending to businesses and households during this current crisis and to absorb the economic shock of the pandemic. In this context, the CRR Quick Fix amends specific aspects of the CRR, by extending the transitional arrangements for mitigating the impact of the provisions of International Financial Reporting Standard 9 on regulatory reporting requirements, applying preferential treatment for publicly guaranteed loans under the prudential backstop for non-performing loans available under the CRR, delaying the application of the leverage ratio buffer for global systemically important institutions to 1 January 2023 and bringing forward the application dates of certain reforms introduced by the CRR.

Meanwhile, a comprehensive proposal for amending the Portuguese Securities Code came to light. If approved by Parliament, this proposal may bring important changes on matters regarding issuers and public offers. One coveted proposal is the possibility of classes of shares attaching multiple voting rights.

Regulations, notices and instructions issued by the CMVM or the Bank of Portugal may also be relevant. Bearing in mind the banking union currently being implemented and EU harmonisation developments, national banking laws are largely in line with EU rules.

The Portuguese capital markets framework still has a number of specificities that should be taken into account, although these are increasingly fewer in light of EU harmonisation. The securities ownership regime is one of these specificities. Under Portuguese law, legal ownership is not set immediately at the level of the accounts opened by financial intermediaries at the local central securities depository (CSD), but rather at a second level in the chain of custody, namely at the level of the accounts opened by clients with the financial intermediaries themselves. In practice, the system works seamlessly and most international investors hold Portuguese securities through indirect custody chains, going through Euroclear and Clearstream or other global custodians.

Another example with important practical implications is the Portuguese tender offer regime's significantly wider scope compared with that of the Takeover Directive. In addition to equity securities, debt securities fall within its purview (as is the case in some other jurisdictions). This means that typical debt securities tender offers are normally restricted to professional investors in Portugal, unless a securities takeover prospectus is approved and disclosed (in cases where bonds are listed outside Portugal, this takes the form of a long-form information memorandum translated into Portuguese and resembling a prospectus).

The financial regulatory system is composed of three pillars (following the same structure as the European supervisory system and divided according to the activities and matters at stake), which are supervised by three main authorities:

  1. the Bank of Portugal (the country's central bank), which has a prudential function (in coordination with the European Central Bank, particularly for the largest Portuguese banks) and market conduct powers to supervise matters related to credit institutions and financial companies operating in Portugal;
  2. the CMVM, which is empowered to supervise the market conduct of financial markets, issuers of securities, and financial instruments and financial intermediaries (investment firms and credit institutions acting in a capacity that falls within the scope of MiFID II) and, which, in 2020, also gained the competence to exercise prudential supervision over asset managers and collective investment undertakings; and
  3. the Portuguese Insurance and Pension Funds Authority (ASF), which supervises the national insurance system.

Finally, the Portuguese authorities may apply sanctions to entities that fail to comply with the applicable laws. Fines generally depend on the type of entity and activities carried out, as well as the seriousness of a breach. A supervisory authority's decision may be contested and submitted to the decision of a special court that exclusively decides on competition, regulation and supervisory matters.

Since the global financial crisis and given the resulting collapse of some important Portuguese economic conglomerates, supervisory authorities have been very active in the enforcement and sanction of market participants and the above-mentioned special court on regulatory matters was set up to enhance the capacity to respond to current regulatory demands. In recent years, authorities have imposed fines on several entities, including banking board members accused of hiding relevant accounting information.