I AMENDMENTS TO THE LEGAL FRAMEWORK APPLICABLE TO CREDIT INSTITUTIONS AND FINANCIAL COMPANIES
Decree-Laws No. 114-A/2014 and 114-B/2014, published, respectively, on the 1st and 4th of August, 2014, introduced a number of amendments to the Legal Framework applicable to Credit Institutions and Financial Companies (Regime Geral das Instituições de Crédito e Sociedades Financeiras - “RGICSF”) in particular with regard to the application of resolution measures by the Bank of Portugal, in line with the legal framework set forth in Directive 2014/59/EU of the European Parliament and of the Council, of May 15, 2014. The main changes were the following:
Amendment to the guiding principle underlying the application of resolution measures and definition of a threshold to the losses incurred by creditors
Pursuant to the amendment of the guiding principle underlying the application of resolution measures foreseen in article 145-B of the RGICSF the criteria applicable to the losses that creditors of an institution under resolution shall incur is no longer that of “equal treatment” but rather that of “equitable treatment”. Indeed the creditors of the credit institution shall now incur, after the shareholders and on equitable terms (rather than subject to “equal treatment”), the losses of the institution under resolution with the order of priority of their claims under normal insolvency proceedings . This new criteria introduces a greater degree of discretion in the application of resolution measures and raises issues in relation to its admissibility and/or applicability considering the Portuguese constitutional framework.
Additionally, the following threshold has been set forth regarding the losses that creditors shall incur as a result of resolution measures: no creditor shall incur greater losses that would have been incurred if the institution had been wound up under normal insolvency proceedings.
To reinforce this limit, the new pieces of legislation introduced a new no. 3 in article 145- B, establishing that, should in any case the creditors – whose credits have not been sold to another credit institution or to bridge institution – incur greater losses than those that would have been incurred if the institution had been wound up under normal insolvency proceedings on the date immediately preceding the application of the resolution measure, such creditors are entitled to receive the difference from the Resolution Fund. The assessment of the level of recovery of credits that each class of creditors would be entitled to if the institution had been wound up on the date immediately preceding the application of the resolution measurel, shall be made through the evaluation of the assets, liabilities, off-balance-sheet items and assets under management which have been transferred to the bridge institution (new no. 4 of article 145-H of the RGICSF).
Protection of Small Shareholders
Relevant amendments were introduced as to the scope of liabilities that may be transferred in the context of the resolution measures, aimed at clearly protecting small shareholders.
Indeed, whilst until now, the RGICSF made no distinction between the various shareholders, establishing that any obligations undertaken by the institution under resolution towards the relevant shareholders could not be transferred to the bridge institution, new paragraph a) of no. 2 of article 145-H limits its scope to shareholders holding at the time of the transfer at least 2% of the share capital and to the persons or entities that within the two years immediately preceding the transfer held at least 2% of the share capital of the institution under resolution.
Resolution Fund and Bridge Institutions
The new pieces of legislation further amended the functioning of the Resolution Fund, in particular the rules on the financing arrangements granted by the Resolution Fund, entitling the Bank of Portugal to determine not only the nature but also the amount to be financed by the Resolution Fund to allow the creation and the activity of the bridge institution, including the granting of loans to the bridge institution for any purpose, disbursement of funds necessary to make capital increases and the granting of guarantees (article 145-H, no.6 of the RGICSF). On the other hand, it is now foreseen that funds granted for purposes other than the realization of the share capital of the bridge institution (limitation that did not exist in the previous article 153-M, no. 2 of the RGICSF) grant to the Resolution Fund a credit right towards the institution under resolution, the bridge institution or the recipient credit institution (as applicable) in the amount corresponding to such funding and benefiting from the same preferential rights that are usually granted to the Deposit Guarantee Scheme (when asked to intervene).
The rules applicable to bridge institutions have also been amended in order to increase the ways and conditions applicable for the transfer of the shares and assets of the bridge institutions, envisaging a more efficient management, as well as to allow the maximization of its value. Hence, the Bank of Portugal, which up until now was only entitled to set forth the rules applicable to the creation and functioning of bridge institutions, is now responsible for all the rules applicable to them. In fact, the Bank of Portugal is currently entitled, where it considers that the conditions necessary for the total or partial disposal of the shares representing the share capital, or the assets, liabilities, off-balance-sheet items and assets under management which are part of their total assets are met, to promote such disposal as deemed more suitable, considering the market conditions existing at the time.
Additionally, the bridge institution itself is further granted with powers to, subject to approval by the Bank of Portugal, promote the sale of its own shares and assets, subject to the same terms and conditions applicable to the Bank of Portugal.
Finally, a new provision has been included in RGICSF clearly stating that upon transfer of the whole share capital of the bridge institution to another entity, it will remain as a credit institution and will no longer be subject to resolution measures.
A. Banking Law: Institutional and Material
Law no. 46/2014. Official Gazette no. 143, Series I of 2014 -07-28
Within the context of the transposition of Directive no. 2013/36/EU of the European Parliament and of the Council of June 26, this Law authorizes the Government to amend the RGICSF and other relevant legislation1, namely as regards:
Suitability requirements for members of the management and supervisory bodies and persons with essential functions in credit institutions and financial companies; Requirements of the remuneration policies for employees of credit institutions
and financial companies;
Establishment of mechanisms for reporting infringements of credit institutions and financial companies; List of corrective measures for credit institutions and financial companies which do
not comply with the rules governing their activity;
Mandatory registration and reporting of transfer operations where the beneficiary is an entity with head office in an offshore jurisdiction; Creation of a database of accounts with information on existing bank accounts in the
banking system, organized and managed by the Bank of Portugal;
Adjustment of the administrative offences scheme of the RGICSF, including the adjustments required to transpose Directive no. 2013/36/EU.
Decree-Law no. 114-A/2014. Official Gazette no. 147, Supplement, Series I of 2014-08-01
Amends the RGICSF, namely Title VIII on the application of resolution measures, partly
enacting Directive no. 2014/59/UE, of the Parliament, establishing a framework for the recovery and resolution of credit institutions and investment firms . Please see the opening text.
Decree-Law no. 114-B/2014. Official Gazette no. 148, Supplement, Series I of 2014-08-04
Amends the RGICSF, in particular the legal framework applicable to bridge institutions measures. Please see the opening text.
1 In addition to amending the Legal Framework Governing Credit Institutions and Financial Companies, this Law authorizes the Government to amend the Securities Code, the Laws no. 25/2008, of 5 June, and no. 28/2009, of 19 June and Decree-Law no. 260/94 of 22 October, no. 72/95 of 15 April, no. 171/95 of 18 July, no. 211/98, of 16 July, no. 357-B/2007 and no. 357- C/2007, of 31 October, no. 317/2009, of 30 October and no. 40/2014 of 18 March.
Law no. 58/2014. Official Gazette no. 162, Series I of 2014-08-25
Amends Law no. 58/2012, of 9 November, establishing an extraordinary regime for the protection of housing loan debtors who are in an extremely difficult economic situation.
Ordinance no. 140/2014. Official Gazette no. 129, Series I of 2 014-07-08
Sets out the procedures required for the application of Law no. 63-A/2008, of 24 November, as amended by Law no. 1/2014, of 16 January, within the capitalisation transactions of credit institutions through public investment.
Directive 2014/92/UE of the European Parliament and of the Council, of July 23, 2014
This Directive lays down rules concerning the transparency and comparability of fees charged
to consumers on their payment accounts held within the European Union (“EU”), as well as rules concerning the switching of payment accounts within a Member State and rules to facilitate cross-border payment account-opening, and it also defines a framework for the rules and conditions according to which Member States are required to guarantee a right for consumers to open and use payment accounts with basic features in the EU.
Commission Implementing Regulation (EU) no. 591/2014 of the Commission, of June 3, 2014
Regulation on the extension of the transitional periods related to own funds requirements for exposures to central counterparties in Regulation (EU) no. 575/2013 and Regulation (EU) no. 648/2012 of the European Parliament and of the Council.
Regulation of the European Central Bank (EU) no. 795/2014, of July 3, 2014
This Regulation sets forth oversight requirements for systemically important payment systems.
Regulation (EU) no. 806/2014 of the European Parliament and of the Council, of July 15, 2014
Establishes uniform rules and procedures for the resolution of credit institutions and certain investment companies within the framework of a Single Supervisory Mechanism and a Single Resolution Fund and amends Regulation (EU) no. 1093/2010.
Commission Implementing Regulation (EU) no. 926/2014 of the Commission, of August 27, 2014
Lays down implementing technical standards with regard to standard forms, templates and procedures for notifications relating to the exercise of the right of establishment and the freedom to provide services according to Directive 2013/36/EU of the European Parliament and of the Council, of 26 June, on access to the activity of credit institutions and the prudential supervision of credit institutions and investment companies.
European Central Bank Decisions
European Central Bank Decision, of September 1, 2014
Amends Decision ECB/2013/35 on additional measures relating to Eurosystem refinancing operations and eligibility of collateral.
Bank of Portugal Notices
Notice no. 3/2014, which has entered into force on August 1, 2014, revokes Notices no. 1/2002, no. 10/2003 and no. 10/2005 regulating the legal framework of the national traditional model of direct debit, which was replaced by SEPA model.
Notice no. 4/2014, which has entered into force on July 23, 2014, determines the applicability of Notices no. 10/2008 and 8/2009 as well as Notice no. 3/2008 , to electronic money institutions.
Bank of Portugal Instructions
Instruction no. 10/2014, which has entered into force on June 30, 2014, reviews the regulation of the Interbank Clearing System (SICOI – Sistema de Compensação Interbancária), set forth in Instruction no. 3/2009.
Instruction no. 11/2014, which has entered into force on July 16, 2014, establishes that the inclusion of instruments (on an individual/or consolidated basis) in own funds is subject to the prior approval of the Bank of Portugal, determining the terms and conditions of such application.
Instruction no. 12/2014, which has entered into force on July 20, 2014, amends Instruction no. 54/2012 of January 15, 2013, regulating the functioning of the TARGET2- PT national system, which forms part of the Trans-European Automated Real-time Gross Settlement Transfer System, TARGET2.
Instruction no. 13/2014, which has entered into force on July 15, 2014, amends Instruction no. 2/2009 of 16 February, establishing the method for determining the remuneration of accounts in the Integrated Settlement Management Application (“AGIL”) with the Bank of Portugal.
Instruction no. 14/2014, which has entered into force on August 18, 2014, determines that electronic money institutions that grant credit to consumers, under Decree-Law no. 133/2009, of 2 June, are subject to Instructions no. 18/2008 – regarding the complaint procedures through BPnet – and no. 21/2009 – establishing aspects related to the Price list -, as well as to Instructions no. 12/2013 – related to the Standard European Consumer Credit Information form –, no. 13/2013 – which summarises the rules for calculating the Annual Percentage Rate of Charge (TAEG) – and no. 14/2013 – which establishes the information to be provided to the Bank of Portugal for certain consumer credit agreements.
Instruction no. 15/2014, which has entered into force on September 17, 2014, sets forth the terms and conditions under which the cash deposit and withdrawal transactions may be provided over the counter by credit institutions at the premises of their customers through equipment operated by them and used exclusively for their operations.
Instruction no. 18/2014, which has entered into force on August 18, 2014, amends Instruction no. 7/2012 of March 15 and establishes the temporary additional measures relating to eligibility criteria of collateral for Eurosystem credit operations.
Instruction no. 19/2014, which has entered into force on September 1, 2014, amends the Instruction no. 47/98 of January 15, 1999, regulating the Market Electronic Transfer System (SITEME – Sistema de Transferências Electrónicas de Mercado ).
Instruction no. 20/2014, which has entered into force on September 1, 2014, revokes Instruction no. 8/2013, of 15 April, which regulates the Inter-bank Secured Money Market.
Bank of Portugal Circular Letters
Circular Letter no. 5/2014/DSP, of August 26, 2014, published on September 15, 2014, clarifies the prudential treatment applicable to future transactions of synthetic securitization which incorporate an option of early repayment as a discretionary exercise by the banks (discretionary calls).
Circular Letter no. 7/2014/DET, of June 23, 2014, published on September 15, 2014, communicates the procedures and requirements to be met by credit institutions within the scope of the cross-border cash transactions.
Circular Letter no. 54/2014/DSC, of July 17, 2014, published on August 18, 2014, clarifies that credit institutions must provide customers the information contained in the evaluation report of the property to be granted as security to credit agreements, regardless of the purpose of the credit.
B. Insurance Law: Institutional and Material
Regulation no. 5/2014-R, of 10 July
Setting forth the indexes to consider in the fire and natural disasters insurance agreements beginning or terminating in the 4th quarter of 2014 for the purposes of the automatic update of value of the houses guaranteed by said insurances
EIOPA - Self-placement
The Joint Committee of the European Supervisory Authorities (“Joint Committee”) published a document and an informative note on the placement with consumers of financial instruments of financial institutions or of its group companies (“self-placement”).
This document aims to prevent, notably by setting forth certain requirements, the violation of European Union rules governing the provision of services to consumers, considering that self-placement exposes consumers to additional risks which are not present in other financial instruments, such as the risk of incurring share losses.
EIOPA – Report on protection of the participants and beneficiaries of supplementary pensions
EIOPA released a report on the strategy adopted regarding its participation in the protection of the participants and beneficiaries of supplementary pensions.
C. Securities and Capital Markets
Law no. 46/2014 – Official Gazette no. 143, Series I of 2014-07-28
Within the context of the transposition of Directive no. 2013/36/EU of the European Parliament and of the Council of July 26, this Law authorizes the Government to amend the Securities Code, namely concerning the compliance with fit and proper requirements of members of the management and supervisory bodies and of persons who effectively direct the activity of the entities under prudential supervision of the Portuguese Securities Commission.
Decree-Law no. 137/2014 – Official Gazette no. 176, Series I of 2014-09-12 Establishes the governance model applicable to European Structural and Investment Funds between 2014 and 2020.
Regulation (EU) no. 909/2014 of the European Parliament and of the Council of July 23, 2014. Official Journal of the European Union of 2014-08-28
This Regulation lays down uniform requirements for improving securities settlement in
the European Union and on central securities depositories and amends the Directives 98/26/EC and 2014/65/EU and the Regulation (EU) no. 236/2012.
Regulation (EU) no. 912/2014 of the European Parliament and of the Council of July 23, 2014. Official Journal of the European Union of 2014-08-28
Establishes the framework for managing financial responsibility linked to investor-to-
state dispute settlement tribunals established by international agreements to which the European Union is party.
Directive 2014/91/EU of the European Parliament and of the Council of July 23, 2014. Official Journal of the European Union of 2014-08-28
Amends Directive 2009/65/CE on the coordination of laws, regulations and
administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) as regards depositary functions, remuneration policies and sanctions.
Portuguese Securities Commission (“CMVM”) Regulations
CMVM Regulation no. 1/2014 of June 26, 2014. Official Gazette no. 31, Series II of 2014-07-10
Registration of Auditors before the CMVM and their duties
This Regulation sets forth the requirements applicable to the registration of auditors as well as auditors and audit entities from third countries under the terms of the Securities
Code, of the additional legislation and CMVM Regulations and establishes the respective duties.