Regulatory framework

Key policies

What are the principal governmental and regulatory policies that govern the banking sector?

The principal regulatory policies governing the Portuguese banking sector are highly influenced by EU regulatory initiatives – in particular, those relating to the creation and implementation of the EU banking union, based on the Single Rulebook and the three pillars of the banking union:

  • the Single Supervisory Mechanism;
  • the Single Resolution Mechanism; and
  • the European Deposit Insurance Scheme.

As a rule, all credit institutions must obtain authorisation from the European Central Bank (ECB) before they can carry out banking activities to ensure that:

  • their activities can be sufficiently monitored; and
  • macroprudential regulatory policies can be adopted.

This authorisation involves an in-depth analysis of:

  • the institution’s programme of activities;
  • the composition of its corporate bodies; and
  • the institution’s shareholder structure.
Primary and secondary legislation

Summarise the primary statutes and regulations that govern the banking industry.

Given the significance of the international banking community, this industry is highly regulated. In light of this and the broad scope of the activities of credit institutions, Portugal has developed an extensive catalogue of legal and regulatory documents, emanated by the Portuguese and EU legislative bodies and the supervisory authorities mentioned below.

As such, it is impossible to list every statute and regulation here. With that in mind, below is a list of the most relevant legal regimes governing the Portuguese banking industry:

  • the Legal Framework of Credit Institutions and Financial Companies, which regulates access to and the development of banking activities and supervises credit institutions and financial companies;
  • the Securities Market Code, which regulates all aspects relating to the issuance and commercialisation of securities and financial intermediaries’ activities;
  • the Corporate Companies Code, sets out the rules applicable to corporate companies, particularly public limited liability companies (which are a type of company established by banks);
  • Law 87/2017 of 18 August, establishes anti-money laundering and anti-terrorism financing measures;
  • the EU General Data Protection Regulation (2016/679), which establishes the protection rules for processing natural persons’ personal data;
  • the Legal Framework of Payment Services, which:
    • transposes the EU Payment Services Directive (2015/2366/EU);
    • regulates the provision of payment services by payment institutions (including banks) and their respective activities; and
    • sets out the rules applicable to the provision of services relating to the issuance of digital currencies; and
  • the Corporate Governance Code (issued by the Portuguese Institute of Corporate Governance in cooperation with the Securities Exchange Market Commission), which sets out non-binding rules regarding the functioning and organisation of all companies (particularly public limited liability companies), including guidelines on:
    • related party transactions;
    • conflicts of interest;
    • general meetings;
    • management;
    • remuneration;
    • risk management; and
    • financial statements and accounting.

Notably, several of the abovementioned statutes (eg, the Legal Framework of Credit Institutions and Financial Companies and the Securities Market Code) were recently subject to modifications by Law 35/2018 of 20 July, which transposed the EU Markets in Financial Instruments Directive (2014/65/EU) into Portuguese law. In addition, some of the abovementioned statutes have recently been updated or adopted to incorporate specific EU rules, such as those regarding anti-money laundering, insurance and payment services.

Finally, the Bank of Portugal (BoP), the Supervisory Authority for Insurance and Pension Funds and the Securities Exchange Market Commission regulate certain aspects of the above legislation.

Regulatory authorities

Which regulatory authorities are primarily responsible for overseeing banks?

At the EU level, and following the implementation of the Single Supervisory Mechanism in 2014, the ECB is the main body responsible for supervising the activities of all Portuguese credit institutions, assisted by the BoP. At this level, it is also worth highlighting the European System of Financial Supervision, which comprises the following supervisory authorities:

  • the European Securities and Markets Authorities;
  • the European Banking Authority;
  • the European Insurance and Occupational Pensions Authority;
  • the European Systemic Risk Board;
  • the Joint Committee of the European Supervisory Authorities; and
  • national supervisory authorities.

All of these entities may individually issue technical rules and guidelines applicable to credit institutions in Portugal.

Further, four Portuguese banks are currently subject to the ECB’s direct supervision:

  • Banco BPI, SA;
  • Novo Banco, SA;
  • Banco Comercial Português, SA; and
  • Caixa Geral de Depósitos, SA.

Because of their size (ie, total assets), these banks are considered significant entities. Notably, banks with assets of more than €30 billion or which account for at least 20% of their home country's gross domestic product are subject to the ECB’s direct supervision.

At the national level, in addition to the BoP, which is responsible for prudential supervision and monitoring banks’ activities, banks are also usually subject to the oversight of the Securities Exchange Market Commission and the Supervisory Authority for Insurance and Pension Funds, which monitor the securities market and insurance activity, respectively, and authorise entities which develop activities in these sectors.

Government deposit insurance

Describe the extent to which deposits are insured by the government. Describe the extent to which the government has taken an ownership interest in the banking sector and intends to maintain, increase or decrease that interest.

All credit institutions must ensure that clients’ deposits are reimbursed at the respective maturity date.

If a credit institution is wound up, deposits will be insured up to €100,000 per client per institution. However, this insurance is not provided by the government. Instead, it is provided by the Deposit Guarantee Fund – a public law legal person with administrative and financial autonomy. All credit institutions with a head office in Portugal that are authorised to take deposits and all credit institutions with a head office in a non-EU member state (in relation to deposits taken by their Portuguese branches) are compulsory members of the fund.

These credit institutions must pay initial contributions to the fund once they begin their activities. The BoP will set the amount of such contributions based on the fund’s proposal. Further, such credit institutions must pay an annual contribution to the fund in an amount based on the average value of monthly credit balances of deposits during the previous year.

With regard to ownership interests held by the Portuguese state in the banking sector, please note that the Portuguese state is currently the sole shareholder of Caixa Geral de Depósitos, the Portuguese public bank. This bank was subject to a capitalisation process initiated in 2017 and carried out by the Portuguese government in accordance with the EU anti-competition rules. Presently, there is no indication that the government intends to reduce the state’s interest in Caixa Geral de Depósitos.

Transactions between affiliates

Which legal and regulatory limitations apply to transactions between a bank and its affiliates? What constitutes an ‘affiliate’ for this purpose? Briefly describe the range of permissible and prohibited activities for financial institutions and whether there have been any changes to how those activities are classified.

An ‘affiliate’ is defined as a company under the control or dominant influence of another company, which:

  • holds the majority of the affiliate’s voting rights;
  • has the right to appoint the majority of the affiliate’s corporate bodies’ members; or
  • for another reason can make decisions for the affiliate.

The amount of credit (including collateral) granted by an affiliate to a qualifying shareholder cannot exceed 10% of the entity’s own funds. Further, the amount of credit (including collateral) granted by an affiliate to all qualifying shareholders cannot exceed 30% of the entity’s own funds. This type of transaction is also subject to approval by an aggravated majority of the board of directors and dependent on the supervisory body’s favourable opinion.

In addition, transactions between a bank and its respective affiliates are considered transactions between related parties and must therefore be indicated in the bank’s financial statements (see International Accounting Standard 24).

This type of transaction is also subject to the following non-binding rules:

  • Credit institutions should establish adequate procedures for transactions between related parties (see Guideline 113 of EBA/GL/2017/11, 26 September 2017 – Guidelines on internal governance under Directive 2013/36/EU).
  • Transactions between related parties should be justified by the company’s interest, completed according to market conditions and subject to transparency principal and suitable monitoring (see Item I.5 of the Corporate Governance Code).
Regulatory challenges

What are the principal regulatory challenges facing the banking industry?

During the second half of 2018, the Portuguese legal system – in particular, the banking sector – was subject to significant changes and innovations (mainly resulting from legal initiatives at the EU level) which led banks with a presence in Portugal to substantially reform their systems and procedures, mainly in the context of client relationships.

Following the introduction of the EU Markets in Financial Instruments Directive (2014/65/EU), the EU Payment Services Directive (2015/2366/EU), the EU General Data Protection Regulation (2016/679) and anti-money laundering legislation, the relevant supervisory entities (ie, the Securities Exchange Market Commission, the BoP and the National Commission for Data Protection) must ensure that these rules are being effectively applied by the banking sector. A medium-term analysis of how these rules are being complied with is likely and may lead the Portuguese or EU bodies to introduce additional changes to the Portuguese legal framework.

Further, Brexit is expected to create regulatory hurdles, depending on whether the United Kingdom leaves without a deal. As such, it is not yet possible to anticipate the measures that may need to be put in place – a major concern for the Portuguese government and the BoP.

In addition to the new regulatory framework, the banking industry is facing new challenges regarding financial, supervisory and regulatory technologies (fintech, suptech and regtech).

As new products and negotiation platforms emerge, so too does a need for regulation and tracking of their respective functions and related organisations. At present, the Portuguese supervisory authorities are uncertain of the best approach: should existing legislation be modernised or should new legislative packages be introduced (as happened with Portugal’s approval of a new crowdfunding regime)? Either way, a new paradigm regarding banking regulation and supervision is necessary – something which is expected to substantially change the existing authorities’ approach.

Consumer protection

Are banks subject to consumer protection rules?

In general, the Portuguese legal framework contains extensive and strict duties to protect consumers, particularly with regard to credit activities. Therefore, over the past 10 years, the regulatory authorities have continually created new regulation and soft law.

The most relevant consumer protection rules applicable to credit activities cover (among other things):

  • information duties;
  • interest rate limits;
  • advertising;
  • litigation; and
  • termination of credit agreements.

Information dutiesCredit institutions must provide extensive information before entering into credit agreements and throughout the duration thereof, including:

  • a standardised information sheet and pricing list;
  • information on any assistance offered to consumers in order to clarify any issues relevant to the decision to enter into the agreement;
  • monthly updates about the credit agreement; and
  • notification of any modifications to credit rates.

In addition, credit institutions must evaluate consumers’ solvency before entering into a credit agreement with them – namely by checking databases, including the Central Credit Register, to which credit institutions must communicate their clients’ liabilities.

Interest rates and chargesThere are also legal limitations on interest rates and charges. The BoP defines the applicable maximum interest rate for each type of credit agreement quarterly. Notably, in relation to credit charges, the only fee due in the case of default is the default interest defined in the agreement and a legally limited recovery charge. All charges must be indicated in the bank’s pricing list.

AdvertisingConsumer credit products are subject to certain advertising limitations. In particular, credit institutions must comply with several general principles (eg, the principle of transparency and accuracy). Further, all ads must contain the annual percentage rate, credit spread and a representative example.

LitigationIn the context of litigation, credit institutions must provide effective and suitable procedures for out-of-court settlements by adhering to the rules of at least two entities in the consumer arbitration network.

Credit institutions must also inform the BoP of the characteristics of any credit agreements that they enter into with consumers, alongside the pricing list.

Termination rightsConsumers are free to terminate a credit agreement within 14 days of completion. Consumers may also reimburse any outstanding amounts in relation to the agreement on payment of a fixed charge (0.5% or 0.25% of the reimbursed amount). On the other hand, credit institutions may terminate a contract only where:

  • a consumer has defaulted on two instalments corresponding to more than 10% of the total credit amount; and
  • they have been given 15 days to pay all due amounts.

Modification of interest ratesThere are also limits on any clauses in an agreement that allow credit institutions to freely modify the interest rates therein; specifically, any change to the interest rates set out in an agreement must:

  • be justified;
  • have clearly defined reasons set out in the agreement; and
  • take effect no earlier than 90 days after being communicated to the consumer, provided that the consumer does not terminate the agreement.

Credit intermediariesCredit institutions may use the services of credit intermediaries; however, as of 2018, such intermediaries must be authorised and registered with the BoP and are subject to several legally imposed duties regarding their relationships with consumers.

BoP’s powersThe BoP enforces all of the abovementioned rules. Failure to comply with the country’s consumer protection rules may result in an administrative offence. In such cases, and notwithstanding the BoP’s competence, the directorate general for consumers is responsible for monitoring, conducting and deciding such administrative procedures.

The BoP frequently conducts audits to verify that credit institutions are complying with the consumer protection rules.

Future changes

In what ways do you anticipate the legal and regulatory policy changing over the next few years?

The banking sector recently underwent a so-called ‘digital transformation’. This transformation – which is expected to continue – has introduced several changes to how banking activity is developed. The main change is the dematerialisation of the procedure for establishing contractual relationships. This change has created several regulatory needs, namely relating to cybersecurity and anti-money laundering.

It is of the utmost importance to understand how to tackle these new trends. Thus, the biggest challenge faced by the banking industry is determining how the legal and regulatory framework will react to this new paradigm: will the existing rules apply to these new trends or will a new framework be necessary?

In Portugal, any change to the existing legal framework will ultimately depend – as it has for the past few years – on the European Union issuing a decision.

In terms of governance rules, legislation and regulation on gender equality in the banking sector is likely to be adopted. Although this has been the trend for the past few years, the rules in this regard are generally non-binding. Therefore, the future is likely to bring enforceable rules regarding the composition of corporate bodies and renumeration.

Supervision

Extent of oversight

How are banks supervised by their regulatory authorities? How often do these examinations occur and how extensive are they?

Banks are subject to the prudential and behavioural supervision of the European Central Bank (ECB) and the Bank of Portugal (BoP). This control regime includes onsite and offsite supervision.

Offsite supervision is based on a continuous and systematic analysis of accounting, prudential, statistical and management reports, which are submitted to the BoP by credit institutions, as well as consumer complaints. This analysis allows for the preparation of periodical reports on the largest and most complex banking groups and on individual banks. Offsite surveillance also comprises a continuous dialogue with credit institutions’ designated contacts by phone or through regular meetings.

Offsite supervision is complemented and reinforced by onsite inspections. The results of offsite surveillance will determine:

  • which institutions should be included in annual onsite inspections plans;
  • the scope of inspections; and
  • the estimated duration of each inspection.

 The annual onsite examination plan includes follow-up inspections of institutions whose previous inspections show important or severe irregularities.

 Inspections can be comprehensive, general or specific. For the largest Portuguese banking groups, onsite inspection is almost continuous, focusing on (among others):

  • key risk areas;
  • internal control systems;
  • asset quality;
  • liquidity; and
  • compliance with prudential limits, both on an individual and a consolidated basis.

Inspections of smaller credit institutions typically focus on assessing their financial condition and compliance with prudential limits.

 

Enforcement

How do the regulatory authorities enforce banking laws and regulations?

The regulatory authorities enforce the applicable banking laws and regulations by:

  • monitoring credit institutions’ activities;
  • conducting offsite and onsite inspections;
  • issuing recommendations to end any irregularities;
  • imposing extraordinary reorganisation measures; and
  • imposing penalties for infractions.

 In extreme situations, infractions may result in the ECB withdrawing a bank’s authorisation.

What are the most common enforcement issues and how have they been addressed by the regulators and the banks?

Most enforcement issues relate to a bank’s behavioural supervision. According to the BoP’s 2018 report, following an analysis of information disclosed by banks (eg, pricing lists, advertising and credit agreements entered into with consumers), 1,335 inspection procedures and 15,254 consumer complaints, the BoP issued:

  • 922 recommendations and specific determinations (directed at 66 institutions), alongside inspections relating to housing credit and consumer credit products (particularly concerning information duties); and
  • 47 infraction proceedings (directed at 19 institutions), which largely arose (85.1%) from the BoP’s analysis of the banks’ complaints systems for consumers.

Resolution

Government takeovers

In what circumstances may banks be taken over by the government or regulatory authorities? How frequent is this in practice? How are the interests of the various stakeholders treated?

The legal regime applicable in this context is based on the EU Bank Recovery and Resolution Directive (2014/59/EU). The Portuguese statute closely follows the directive’s wording. Specifically, three measures can be applied in the case of infringement or a risk of infringement of the rules and regulations applicable to banking activity:

  • early intervention;
  • temporary administration; and
  • resolution.

The application of these measures is subject to proportionality and adequacy tests, which consider the risks faced by the institution and the impact on:

  • its financial stability;
  • the interests of depositors; and
  • the stability of the financial system.

In the past five years, resolution measures were applied to two of the 10 largest banks in Portugal: Banco Espírito Santo, SA and Banco Internacional do Funchal, SA.

Depositors are protected by the Deposit Guarantee Fund, which should reimburse the depositors in case of bank failure. However, in the two bank resolutions above, depositors were transferred to a bridge institution or an existing bank that acquired part of the activity of the resolved bank; therefore, the depositors were able to claim their full deposits from the new debtor.

Depositors and other creditors are also protected by ‘no creditor worse off’ provisions. Certain creditors (depositors and employees) rank above common creditors. Shareholders of the resolved bank are the first to bear the losses.

 

Bank failures

What is the role of the bank’s management and directors in the case of a bank failure? Must banks have a resolution plan or similar document?

In case of resolution or liquidation of a credit institution, the corporate bodies are replaced by a new board or liquidation committee, designated by the Bank of Portugal (BoP) or the competent court under a proposal made by the BoP, as the case may be.

Are managers or directors personally liable in the case of a bank failure?

In the case of a bank failure, managers and directors will be personally liable to the company or its creditors only where they breached certain provisions under the law or in the bank’s articles of association – in particular, those intended to protect the company’s assets.

Planning exercises

Describe any resolution planning or similar exercises that banks are required to conduct.

Banks must draw up and maintain a recovery plan, which must be approved by the bank’s management body and submitted to the BoP for approval. The recovery plan must:

  • contain the information required under statute (based on Section A of the annex to the EU Bank Recovery and Resolution Directive); and
  • be reassessed at least annually and whenever events occur which affect the plan or its assumptions.

The BoP can also request the reassessment and revision of a recovery plan.

The BoP also creates resolution plans and reassesses these at least on a yearly basis.

Capital requirements

Capital adequacy

Describe the legal and regulatory capital adequacy requirements for banks. Must banks make contingent capital arrangements?

At the EU level, there are harmonised rules on capital requirements. These are part of the Single Rulebook, which comprises the EU Capital Requirements Regulation (CRR) (575/2013) and the EU Capital Requirements Directive IV (CRD IV) (2013/36/EU). The CRR and CRD IV were transposed into the Legal Framework of Credit Institutions and Financial Companies and binding technical standards and guidelines. The CRR requires banks to have enough capital available to face losses in the event of a crisis (the so-called ‘own funds requirement’).

The own funds requirement is expressed as a percentage of risk-weighted assets according to the following rationale: the safer the asset, the lower the capital allocation.

The minimum total amount of capital that banks must maintain equals 8% of their risk-weighted assets. From the total amount indicated above, banks must hold a Common Equity Tier 1 of 4.5% of their risk-weighted assets.

How are the capital adequacy guidelines enforced?

Credit institutions must provide the Bank of Portugal (BoP) with all information necessary for the BoP to evaluate the institution’s compliance with the capital requirements. Onsite inspections may also take place.

If these requirements are not met, the BoP’s first priority will be to restore the situation, rather than penalising the credit institution. To do so, the BoP may require the institution to take corrective measures in order to reverse the situation (eg, require the institution to reinforce its internal mechanisms of self-evaluation, require it to compose special provisions, impose limitations on the institution’s activities or demand the utilisation of net profits to reinforce the institution’s own fund base)

Notwithstanding the above, failure to comply with the capital requirements is a particularly serious offence, which may result in a fine of between €10,000 and €5 million.

Undercapitalisation

What happens in the event that a bank becomes undercapitalised?

If a bank becomes undercapitalised, the regulatory authorities can resort to early intervention, temporary administration or resolution measures. Depending on the severity of the undercapitalisation, the BoP can:

  • sell the business;
  • create a bridge institution;
  • effect asset separation; or
  • conduct a bail-in.
Insolvency

What are the legal and regulatory processes in the event that a bank becomes insolvent?

If a bank becomes insolvent, the regulatory authorities will decide whether they can determine the immediate judicial liquidation of the entity or whether the winding up of the institution will have adverse effects in terms of resolution objectives. If this is the case, the regulatory authorities will apply a resolution measure, which will automatically:

  • remove of the bank’s management and supervisory bodies; and
  • appoint new management and supervisory bodies to the resolved bank.
Recent and future changes

Have capital adequacy guidelines changed, or are they expected to change in the near future?

In 2016 the European Commission proposed changes to the CRR and CRD IV in order to strengthen the resilience of European banks and introduce some proportionality essential to smaller institutions.

On 16 April 2019 the European Parliament supported the commission’s amendments; the introduction of these changes is expected soon.

Ownership restrictions and implications

Controlling 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 control

Required 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.
Filing requirements

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.
Timeframe for approval

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.

Update and trends

Update and trends

Recent developments

The most recent Portuguese banking regulation relies on the EU Payment Services Directive (2015/2366/EU), the EU General Data Protection Regulation (2016/679) and anti-money laundering legislation.

Given the popularity of crowdfunding in the European Union and Portugal, an official version of the Proposal for a regulation of the European Parliament and of the Council on European Crowdfunding Service Providers for Business is expected.

Other emerging trends in the banking sector concern the introduction of financial, supervisory and regulatory technologies (fintech, regtech and suptech). Although not yet regulated, these technologies are likely to be a key part of the future of the banking industry; thus, their regulation is of the utmost importance.

Finally, virtual currencies, cryptocurrencies and the use of blockchain technology are major trends in the Portuguese banking sector. 

In line with the EU authorities, the Bank of Portugal (BoP) has issued the following statement about cryptocurrencies:

the issuing and trading activity of virtual currencies is not regulated or supervised by the Bank of Portugal or any other authority of the national or European financial system, in particular by the European Central Bank.

The focus in this regard is understanding the legal nature and implications of cryptocurrencies given the existing regulatory framework. At present, no legal regime applies.

Normally attached to cryptocurrencies, blockchain has become a prominent technology with disruptive capacity in the traditional framework. This technology can be applied to several products and services and it is expected that several banks will use this distributed ledger technology in the next few years.

Despite the country’s best efforts, there is no final understanding and therefore no current legislation or regulation regarding any of these topics, as both the Securities Exchange Market Commission and the BoP are still cautious on how best to approach this new wave of banking products and technologies. Nonetheless, throughout 2019 there has been an increase in conferences, presentations and reports from both authorities in order to prepare banking industry players for the changes to come.

Law stated date

Correct as of

Give the date on which the information above is accurate.

10 September 2019.