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Introduction

According to the Bank of Portugal's projections, the Portuguese economy will grow by 6.3 per cent in 2022, 2.6 per cent in 2023 and 2 per cent in 2024. The rate of change projected for 2022 is the result of the carry-over effect of developments in activity in the previous year, associated with the pandemic crisis recovery process, which continued into the beginning of the current year as GDP reached pre-pandemic levels in the first quarter. The deteriorating international environment constrains developments in economic activity. Although the Portuguese economy is not directly exposed to the conflict between Russia and Ukraine, it is also suffering from its indirect impacts, which have resulted in increased uncertainty, higher inflation rates and sharper disruptions in global production chains, additionally heightened by the pandemic situation in China. These factors have contributed to a slowdown in external demand. Bearing this scenario in mind, financing conditions are expected to worsen over the projection horizon, with gradually less accommodative monetary policies, giving rise to inflationary pressures around the world. Despite these recent events, Portugal maintains signs of recovery. According to the Bank of Portugal investment will continue to grow by 6 per cent on average during 2022–2024, close to that observed in 2021, largely reflecting inflows of European funds and exports will grow by 13.4 per cent in 2022, gradually decelerating to close to the pre-pandemic pace in 2024. The unemployment rate will continue to decline to 5.6 per cent in 2022.

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 2022, including:

  1. Decree-Law No. 31/2022, of 6 May 2022, which transposes Directive (EU) 2019/2162 of the European Parliament and of the Council of 27 November 2019 on the issue of covered bonds and covered bonds public supervision (the Covered Bonds Directive). This Decree-Law approves the new Legal Regime of Covered Bonds, and, without prejudice to certain transitory provisions, this new regime entered into force on 1 July 2022, imposing substantial changes on the legal framework that was applicable to the issue of covered bonds. For further information on the new Legal Regime of Covered Bonds, see 'Covered Bonds', below; and
  2. Law No. 99-A/2021, of 31 December, amending the Portuguese Securities Code, which entails a number of relevant developments to the capital markets with the purpose to: (1) simplify and reduce regulatory burdens while safeguarding investor protection and market integrity; (2) align with the European legislation seeking to eliminate national level legal or regulatory requirements; (3) change the legal framework for public offers for distribution; and (4) amend the legal framework for takeover bids.

We highlight the main changes of the revised Portuguese Securities Code, which include: (1) the deletion of the public company status, allowing companies to finance themselves, including through access to a non-regulated market, by issuing equity instruments without being subject to the current rules applicable to public companies; for example, the communication of qualifying holdings or falling under the framework for mandatory takeover bid are mechanisms applicable only to companies with shares admitted to trading on a regulated market; (2) the admissibility of the issue of shares with plural voting rights, albeit restricted to listed companies; (3) the simplification of the qualifying holdings framework, notably by eliminating the communication duty in relation to the 2 per cent threshold (a requirement which does not exist in most European markets); and (4) the simplification and deletion of reporting duties considered non-essential or redundant (resulting in the removal or clarification, or both, of approximately 50 per cent of issuers' reporting duties). In the market operations context, we highlight the following major amendments: (1) an increase, from €5 million to €8 million, of the threshold below which the publication of a prospectus is not required; (2) removal of the mandatory nature of assistance and placement services in public offerings, thereby allowing for the reduction of costs incurred by offerors with services provided by financial intermediaries, which are now voluntary; (3) flexibility in the choice of language of the prospectus, in line with CMVM's recent practice thereby facilitating access for international investors via the Portuguese market; and (4) the rules on takeover bids shall no longer apply to the acquisition of debt instruments; and (5) amendments to the liability framework for the contents of the prospectus.

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.

However, the Portuguese capital markets framework still has a number of specificities that should be taken into account. 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.

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 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 acquired 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 the 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, with the above-mentioned special court on regulatory matters having been set up to enhance the capacity to respond to growing regulatory demands. In recent years, authorities have imposed fines on several entities, including banking board members accused of hiding relevant accounting information.