Ownership restrictions and implicationsControlling interest
Describe the legal and regulatory limitations regarding the types of entities and individuals that may own a controlling interest in a bank. What constitutes ‘control’ for this purpose?
Without prejudice of the rules applicable to the acquisition of qualifying holdings (as described below), Portugal sets no limitations on the types of entity which may control a bank.
For a company to hold a controlling interest over a bank, one of the following must be true:
- The company holds the majority of the voting rights over the bank.
- The company holds the right to appoint or remove the majority of the members of the bank’s corporate bodies.
- The company can exercise a dominant influence over the bank.
- The company can manage the bank as if they function as the same entity.
Further, according to International Accounting Standard 24:
control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities… [and] significant influence is the power to participate in the financial and operating policy decisions of an entity… [which] may be gained by share ownership, statute or agreement.Foreign ownership
Are there any restrictions on foreign ownership of banks?
The Banking Law does not restrict foreign ownership of credit institutions based on the nationality of the shareholders of such credit institutions. Equality and non-discrimination principles apply to this matter. Any EU, non-EU or Portuguese entity may acquire shareholdings, including controlling interests, in credit institutions.Implications and responsibilities
What are the legal and regulatory implications for entities that control banks?
The Banking Law does not limit the business activities of a credit institution’s parent company or any of its affiliates (ie, they are not limited to banking or financial services).
The activities of these entities are relevant only for the application of the rules relating to supervision – specifically, supervision on a consolidated basis. Without prejudice to supervision on an unconsolidated basis (which always applies), credit institutions with a registered office in Portugal that have one or more credit institutions or entities similar to credit institutions as subsidiaries, or that hold a shareholding in such institutions or entities, are subject to supervision based on their consolidated financial situation. Moreover, credit institutions with a registered office in Portugal that have a parent company that is a financial holding company with a registered office in an EU member state are subject to supervision based on the consolidated financial situation of the financial holding company.
Further, under the Banking Law, credit institutions controlled by non-financial companies (ie, by mixed holding companies) must inform the Bank of Portugal (BoP) of any significant transactions entered into with the mixed holding company (in which group they are included) and with the subsidiaries of such company.
Finally, the Banking Law states that holding companies are subject to the BoP’s supervision when their shareholdings either directly or indirectly give them a majority of the voting rights in one or more credit institution. The BoP may also subject the holding companies which hold a qualifying shareholding in a credit institution or a financial company to its supervision.
What are the legal and regulatory duties and responsibilities of an entity or individual that controls a bank?
The main duty of qualifying shareholders is to provide the BoP with all information necessary for it to supervise the credit institution in question.
Further, when a credit institution is in financial difficulty, the BoP may recommend that the institution’s shareholders provide adequate financial support.
What are the implications for a controlling entity or individual in the event that a bank becomes insolvent?
The shareholders of a bank subject to resolution measures must first bear the losses. However, no shareholder will bear a loss greater than that borne had the bank been wound up.
Changes in controlRequired approvals
Describe the regulatory approvals needed to acquire control of a bank. How is ‘control’ defined for this purpose?
Before acquiring or increasing a qualifying holding in a credit institution, the project must be communicated to the Bank of Portugal (BoP), regardless of whether completion is guaranteed.
For this purpose, ‘qualifying holding’ is understood as a direct or indirect participation representative of 10% or higher of the share capital or voting rights of a company and any participation that allows the respective holder to exert significant influence over the company’s management.
The BoP may oppose the project if it believes that the acquirer cannot guarantee the sound and prudent management of the credit institution or if the information provided by the acquirer is incomplete. In this case, the BoP informs the acquirer about the opposition and respective reasons. This decision may be disclosed to the public at the initiative of the BoP or the acquirer.
If the BoP accepts an acquisition, the entity may set a completion date.
The BoP must be informed that an acquisition has been completed within 15 days.
Further, any acquisition by a participation representative of at least 5% of the share capital or voting rights of a credit institution must be communicated to the BoP within 15 days thereof.
Finally, the acquisition of 10%, 20%, 33.3%, 50%, 66.6% or 90% of the share capital or voting rights of an open capital company (which applies to several banks) must be communicated to the Securities Exchange Market Commission.Foreign acquirers
Are the regulatory authorities receptive to foreign acquirers? How is the regulatory process different for a foreign acquirer?
Foreign entities are not limited in their ability to acquire control of a bank. However, in such cases, the BoP will usually request additional information – namely regarding the acquirer’s beneficial owners – and conduct further enquiries.
If the acquirer or the respective parent company or controller is a credit institution, an insurer, an investment company or a fund manager authorised to develop the respective activity in an EU member state, the BoP will analyse the acquisition project in cooperation with the competent supervisory authority.
On the other hand, if the acquirer is not established in the European Union, the BoP will inform the European Commission and the competent authorities of the relevant EU member states of the acquisition, provided that the acquisition results in the acquired credit institution becoming a subsidiary.Factors considered by authorities
What factors are considered by the relevant regulatory authorities in an acquisition of control of a bank?
The BoP will analyse an acquisition project to determine whether the acquirer can assure the sound and prudent management of the credit institution. To make this determination, the BoP will examine the following criteria:
- the acquirer’s reputation;
- the reputation, professional abilities, independence and availability of the board of directors that will be appointed as a result of the acquisition;
- the acquirer’s financial situation;
- the existence of a structure that is suitable to comply with the necessary prudential requirements; and
- potential money laundering or terrorism financing risks or activities.
Describe the required filings for an acquisition of control of a bank.
Before acquiring a qualifying holding in a bank, the BoP must be notified. This communication must be accompanied by:
- general information about the acquirer (including personal and professional information and answers to questions to assess the acquirer’s reputation);
- general information about the acquisition (including information about the object and purpose thereof, the intervention of third parties and relevant shareholders’ agreements);
- general information about the financing of the acquisition (including information about the use of the acquirer’s own funds and the respective origin, transfer methods, resource to external financing sources and the acquirer’s assets which will be transferred in the short term);
- declarations regarding the veracity of the information provided and an acknowledgement that failure to comply with information duties is a punishable infraction;
- declarations authorising entities with secret duties to provide the elements necessary to confirm the acquirer’s statements and communicate any changes to such information; and
- other ancillary information requested by the BoP.
In case of a change of control, it is also necessary to disclose information about the strategic development plan, the provisional accounts and the impact of the acquisition on the governance structure of the entity to be acquired. If the acquisition does not result in a change of control, a document containing strategic guidelines is sufficient.
If the BoP already holds the information described above, the acquirer may be totally or partially exempt from providing it.
Where the Securities Exchange Market Commission must also be notified, such communication must include:
- the identification of all entities to which the participation is attributed;
- details of the voting rights, share capital and number of shares and respective class (if applicable) held by the acquirer; and
- the acquisition date.
What is the typical time frame for regulatory approval for both a domestic and a foreign acquirer?
The BoP must inform an acquirer of its decision regarding an acquisition project within 60 days of the date on which all required information has been provided. This period may be extended if the BoP requests additional information, up to 90 days where the acquirer is a non-EU entity or 80 days in the case of domestic or EU-based acquirers.