On 18 March, Decree-Law no. 40/2014 (“DL 40/2014”) has been published aimed at guaranteeing the enactment and the implementation at a national level of the EU Regulation no. 648/2012 of the European Parliament and the Council, of 4 July 2012 - commonly called for the acronym “EMIR” (European Market Infrastructure Regulation), regarding over the counter derivatives (OTC), central counterparties and the trade repositories -, as well as the relevant delegated and implementing acts related thereto.
The EMIR was adopted within the context of the financial crisis, which has brought OTC derivatives to the forefront of regulatory attention by highlighted their lack of transparency (since they are privately negotiated contracts any information concerning them is usually only available to the contracting parties) and the fact that they create a complex web of interdependence which can make it difficult to identify the nature and level of risks involved. The financial crisis has demonstrated that such characteristics increase uncertainty in times of market stress and, accordingly, pose risks to financial stability. The main purpose of the EMIR is to lay down conditions for mitigating those risks and improving the transparency of derivative contracts.
In order to achieve said goals the main obligations set forth in the EMIR are the following:
Mandatory clearing through an authorised central counterparty (“CCP”)
Obligation of certain classes of standardised OTC derivatives being cleared through an authorized CCP in order to guarantee the regular functioning of the market, avoid counterparty credit risk and therefore reducing systemic risk.
Adoption of risk-mitigation techniques for OTC derivative contracts not cleared by a CCP
Since OTC derivative that are not considered suitable for CCP clearing also entail operational risk and counterparty credit the relevant counterparties shall ensure, exercising due diligence, that appropriate procedures and arrangements are in place to measure, monitor and mitigate operational risk and counterparty credit risk, including at least:
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(a) Timely confirmation, where available, by electronic means, of the terms of the relevant OTC derivative contract;
(b) Formalised processes which are robust, resilient and auditable in order to reconcile portfolios, to manage the associated risk and to identify disputes between parties early and resolve them, and to monitor the value of outstanding contracts.
The above mentioned obligations apply not only to financial counterparties (v.g. legal entities duly authorized to carry out banking, insurance, pension funds and investment activities) but also to non-financial counterparties although in less demanding circumstances.
Under certain conditions, intragroup transactions are exempted by the EMIR from some of the requirements set forth regarding clearing and the adoption of risk mitigation techniques, including, notably, the timely, accurate and appropriately segregated exchange of collateral with respect to OTC derivative contracts entered into.
Reporting of information to Trade Repositories (“TR”)
From 12 February 2014 onwards, counterparties (financial and non-financial) and CCPs shall ensure that the details of any derivative contract they have concluded and of any modification or termination of the same are reported to a TR (legal person that centrally collects and maintains the records of derivatives and allows access thereto by the supervisory authorities). The details shall be reported no later than the working day following the conclusion, modification or termination of the contract.
The above mentioned obligation applies to all OTC derivative contracts entered into on or after 16 August 2012 as well as to the contracts that, although entered into before, remained in force on that date.
A counterparty or a CCP which is subject to the reporting obligation may delegate the reporting of the details of the derivative contract amongst themselves or to a third party and shall ensure that the details of their derivative contracts are reported without duplication.
Where a TR is not available to record the details of a derivative contract, counterparties and CCPs shall ensure that such details are reported to the European Securities and Markets Authority (“ESMA”).
Further to the above mentioned obligations the EMIR sets forth rules regarding the authorization, exercise, activity and supervision of the CCPs – organization, corporate governance and prudential requirements – and of the TRs, appointing
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ESMA as the ultimate supervisory authority responsible for the authorization and supervision of these entities.
Although EMIR entered into force on 16 August 2012, the enforceability of some of the provisions thereto was subject to the adoption of regulatory technical standards (“RTS”) and implementing technical standards (“ITS”) by the European Commission, by means of delegated acts and implementing acts respectively. On the other hand, the definition of certain aspects of the legal framework has been committed to the Member States, which justifies the approval of Decree-Law no. 40/2014, aimed at, in accordance with its preamble, guarantee the implementation and operation of EMIR at a national level.
Decree-Law no. 40/2014 legal framework
Appointment of the national competent Supervisory Authorities
In compliance with the Portuguese tripartite supervisory model, the allotment of attributions amongst the different supervisory authorities will be as follows:
(a) Bank of Portugal:
Supervision of fulfillment of the obligations imposed by EMIR to the financial counterparties regarding the entities which are under its supervision (e.g. credit institutions and financial companies), investigation of eventual violations, procedural instruction and the imposition of fines and ancillary sanctions.
(b) Portuguese Insurance Institute
Supervision of fulfillment of the obligations imposed by EMIR to the financial counterparties, regarding insurance and reinsurance undertakings, pension funds and the respective management entities subject to its supervision, investigation of eventual violations, procedural instruction and the imposition of fines and ancillary sanctions.
(c) Portuguese Securities Commission (“CMVM”)
Supervision of fulfillment of the obligations imposed by EMIR to the financial counterparties, regarding collective investment schemes and investment companies subject to its exclusive supervision, investigation of eventual violations, procedural instruction and the imposition of fines and ancillary sanctions;
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Supervision of fulfillment of the duties imposed by EMIR to non financial counterparties, investigation of eventual violations, procedural instruction and the imposition of fines and ancillary sanctions.
Authorization and supervision of CCPs;
Verification of authenticity of the ESMA decisions imposing fines and monetary compulsory sanctions to a TR.
Definition of the sanctioning regime applicable in case of violation of the obligations imposed by EMIR
DL 40/2014, after identifying the illicit facts that typically constitute a serious or very serious administrative offense (whose fine amount will depend on the fact of having been conducted by a financial or non-financial counterparty and on the fact of it being a natural person or a legal entity), clarifies that:
(a) Said administrative offenses may be attributed not only to the relevant counterparties (financial or non financial) but also to the natural persons who are members of the relevant corporate bodies or that hold a leadership or management position or who act under legal or voluntary representation;
(b) Whenever the administrative offense is attributed to an entity with no legal personality, its patrimony will be deemed as liable and if deemed insufficient the patrimony of each member will be deemed as jointly liable as well;
(c) Negligence is punishable, being the minimum and maximum limits of the fines halved;
(d) Whenever an administrative offense results in the omission of a duty, the application of the sanction and the payment of the fine do not exempt the offender from the practice of the omitted act, if it is still possible.
Approval of the legal framework applicable to CCPs
The new rules were adapted and separated from Decree-Law no. 357-C/2007, of 31 October 2007 (as amended by Decree-Law no. 52/2010, of 26 May 2010 and by Decree Law no. 18/2013, of 6 February 2013), which sets forth the legal regime applicable to the constitution and operation of market and system management entities, being this diploma amended accordingly. Furthermore, it has been decided to maintain in the in the Portuguese Securities Code (“PSC”),
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consequently amended, the general principles applicable regarding the clearing obligations through a central counterparty.
Additionally, and since the rules regarding the activity of central counterparties are also prescribed in the PSC, it has been decided to also maintain in the PSC the penalty regime applicable to central counterparties.
Finally it is worth mentioning that CMVM shall maintain a record listing all the CCPs authorised by it and that it must, within a 90 days term, regulate the matters regarding the implementation of the approved legal regime regarding the:
(a) Instruction of the authorization request of a CCP in accordance with EMIR;
(b) Informative requirements applicable regarding qualified shareholdings and the appointment of members of the relevant board of directors and supervisory board;
(c) Financial information subject to a report duty to CMVM and to public disclosure.
Amendment of article no. 284 of the PSC and of Decree-Law no. 221/2000, of 9 September 2000 (as amended by Decree-Law no. 58/2011, of 29 June 2011 and by Decree Law no. 18/2013, of 6 February 2013)
In compliance with article 87 of the EMIR, which amended the EC Directive no. 98/26, of the European Parliament and the Council, of 19 May 1998, on settlement finality in payment and securities settlement systems, a new provision has been approved in Portugal in order to protect the interests of the system operator who had provided collateral security to another system operator in connection with an interoperable system, stating that the rights of the providing system operator shall not be affected by insolvency proceedings against the receiving system operator.
A. Banking Law: Institutional and Material
Law no. 1/2014, of 16 January, 2014. Official Gazette no. 11, Series I, of 2014-01-16
Entails the eight amendment of Law no. 63-A/2008, of 24 November 2008, setting forth measures for strengthen credit institutions’ financial soundness within the scope of the initiative for the strengthening of financial stability and availability of liquidity in the capital markets.
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Declaration of Rectification no. 17/2014, of 11 March 2014. Official Gazette no. 49, Series I, of 2014-03-11
Declaration of Rectification to Law no. 1/2014, of 16 January, which proceeds to the eight amendment of Law no. 63-A/2008, of 24 November, setting forth measures for strengthen credit institutions’ financial soundness within the scope of the initiative for the strengthening of financial stability and availability of liquidity in the capital markets, published in the Official Gazette, Series I, no. 11, of 16 January 2014.
Commission Delegated Regulation (EU) no. 241/2014, of 7 January 2014 Official Journal of the European Union of 2014-03-14
This Regulation supplements Regulation (EU) No 575/2013 of the European Parliament and of the Council with regard to regulatory technical standards for Own Funds requirements for institutions.
Commission Delegated Regulation (EU) no. 342/2014, of 21 January 2014. Official Journal of European Union of 2014-04-13
Supplements Directive 2002/87/EC of the European Parliament and of the Council and Regulation (EU) no. 575/2013 of the European Parliament and of the Council with regard to regulatory technical standards for the application of the calculation methods of capital adequacy requirements for financial conglomerates.
Regulation (EU) no. 248/2014 of the European Parliament and the Council, of 26 February 2014. Official Journal of European Union of 2014-03-20
Amends Regulation (EU) No 260/2012 as regards the migration to Union-wide credit transfers and direct debits.
Council implementing decision, of 11 February 2014. Official Journal of European Union of 2014-02-12
Implements Regulation (EU) No 1024/2013 conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions.
Directive 2014/17/EU of the European Parliament and of the Council, of 14 February. Official Journal of European Union of 2014-02-28
This Directive applies to credit agreements for consumers relating to residential immovable property and amends Directives 2008/48/EC and 2013/36/EU and Regulation (EU) No 1093/2010
Bank of Portugal Instructions
Instruction no. 1/2014, which has entered into force on 31 January 2014, proceeds to the amendment of Instruction no. 3/2009, which establishes the rules of the Interbank Clearing System (SICOI).
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Instruction no. 2/2014, which has entered into force on 1 April 2014, publishes the maximum rates applicable to credit institutions entered into with consumers for the 2nd quarter of 2014 in compliance with Decree-Law no. 133/2009.
Instruction no. 3/2014, which has entered into force on 1 April 2014, proceeds to the amendment of Instruction no. 1/99, which regulates the Intervention Operation Market (M.O.I.).
Instruction no. 4/2014, which has entered into force on 1 April 2014, proceeds to the amendment of Instruction no. 7/2012, establishing additional temporary measures for the Intervention Operation Market (M.O.I.). Bank of Portugal Notices Notice no. 1/2014, published on 2 February 2014, which amends the Bank of Portugal Notice no. 5/2013 that establishes the conditions, mechanisms, and the necessary procedures for the compliance with anti-money laundering and terrorism financing provisions. Bank of Portugal Circular Letters Circular Letter no. 24/2014/DSC, of 17 March 2014 defines the good practices to be observed by credit institutions in order to simplify and standardize the commissioning of current deposit accounts, conveying the Bank of Portugal’s understanding that credit institutions shall commercialize one current bank deposit account subject to the general minimum bank services as set forth by Decree-Law no. 27-C/2000, of 10 March 2000, currently in force, except for the access restrictions and commissioning restrictions set forth therein.
B. Insurance Law: Institutional and Material
Portuguese Insurance Institute Regulation no. 1/2014-R. Official Gazette no. 31, Series II of 2014-02-2013
This Regulation publishes the indexes to consider in the insurance agreements beginning or terminating in the 2nd quarter of 2014, for the purposes of the automatic update in the fire insurance regarding risks related with houses, of the value of the house or of the part of it that is insured, in accordance with article 135 of the Portuguese Insurance Contract Law, approved by Decree Law no. 72/2008, of 16 April.
C. Securities and Capital Markets
Decree-Law no. 29/2014, of 25 February 2014. Official Gazette no. 39, Series I of 2014-02-25
Proceeds to the second amendment of Decree-Law no. 69/2004, of 25 March, and regulates the discipline applicable to the monetary securities designated as commercial paper.
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Decree-Law no. 40/2014, of 18 March 2014. Official Gazette no. 54, Series I of 2014-03-18
Approves the national measures necessary for the implementation in Portugal of the EU Regulation no. 648/2012, of the European Parliament and the Council, of 4 July 2012 on OTC derivatives, central counterparties and trade repositories, including the respective sanctioning regime, and amends the Portuguese Securities Code, approved by Decree-Law no. 486/99, of 13 November 1999.
Circular Letter of 24 January 2014
This Circular Letter of 24 January 2004 determines the legislation to observe in annual accounts reports, besides the Commercial Companies Code and the applicable accounting legislation, as well as the requirements applicable regarding the disclosure of the annual financial statements, the annual general meetings and the disclosure of privilege information.