Redesigning the financial sector
Hugo Rosa Ferreira and Alexander Ehlert
PLMJ
Lisbon
Hugo Rosa Ferreira (Bio)
Alexander Ehlert (Bio)
One of the conclusions that has been drawn from the current financial crisis is the need to redesign the financial sector, both at a national and at an international level. This need has been particularly felt in peripheral European countries such as Portugal, where the crisis has affected banks that were once thought to be solid and has required the intervention of the Portuguese government in order to provide additional comfort to depositors. As a result, several important measures have been adopted in the past 12 months.
Banking contribution
On October 2010, the Bank of Portugal (BoP) issued a notice laying down the possibility of fixing, by means of instructions, the annual minimum contribution for credit institutions that participate in the Deposit Guarantee Fund, regardless of the amount of deposits made in such credit institutions and that are covered by the guarantee. This notice was issued due to the fact that the implementation of the currently existing periodic contribution rate led to materially irrelevant or even non-existing contributions for certain credit institutions participating in the Deposit Guarantee Fund.
Furthermore – and subsequent to the amendments made by the State Budget Law 2011, which established a mandatory contribution to be paid by the banking sector – the Ministry of Finance recently passed a ministerial order detailing the terms according to which such contribution is calculated. The newly established contribution is levied on credit institutions with a head office in Portugal, as well as on subsidiaries and branches of credit institutions which do not have its head office in Portugal or in the EU, respectively.
The contribution is levied at a rate of 0.05% on the liabilities resulting from the balance sheet, after deduction of the credit institution's tier 1 and tier 2 capital and the deposits covered by the Deposit Guarantee Fund, and at a rate of 0.00015% on the notional value of the derivative financial instruments not included in the balance sheet of the taxpayers.
With regard to the contribution levy base, the ministerial order lays down exemptions within the corresponding components, notably concerning specific types of liabilities and derivative financial instruments. The rationale lying behind those exemptions and the creation of the contribution itself consists in the mitigation of the financial systemic risk.
Disclosure of qualified holdings
Within the framework of the 'Better Regulation' approach adopted by the European Commission, the National Council of Financial Supervisors (CNSF) warranted the creation of a level playing field regarding the elements and information to be required by the Portuguese Securities Market Commission (CMVM), the BoP and the Insurance Institute of Portugal (ISP), for the purpose of the prudential assessment of potential acquirers of qualified holdings in financial entities.
Following that initiative, the BoP has issued in December 2010 a notice which sets forth exhaustively the information requirements concerning the disclosure of projects of acquisition and increase of qualified holdings in said credit institutions, financial companies and investment firms subject to the supervision of the BoP. The purpose of this measure is to safeguard the necessary legal certainty underlying the evaluation process of the offers as well as the result of the same concerning the acquisition and increase of qualified holdings in entities of the financial sector, via a prudential assessment by the BoP.
With regard to investment consulting companies and markets, systems and services management entities, the CMVM recently also issued rules setting forth in exhaustive terms the elements and information that shall accompany the communication to the CMVM of the projects of acquisition, increase or decrease of qualified holdings in such entities and the information to be submitted to the CMVM for the purposes of evaluation of the qualification and suitability of the members of the corresponding management and supervisory bodies.
Investor protection
Investor protection has also been increased, notably through provisions aiming at the prevention of market abuses and the enhancement of the market credibility in Portugal.
In this context, the CMVM recently approved rules that oblige financial intermediaries with registered office in Portugal and financial intermediaries with registered office in other Member States of the EU established through a branch in Portugal to disclose transactions concerning derivate financial instruments which were entered into outside of a regulated market, when the underlying assets are admitted to trading on such a market. It should be noted that these rules do not apply to derivative financial instruments not admitted to trade on regulated markets with multiple underlying assets, unless the same are issued by a single issuer.
Investment funds
In June 2010, the Portuguese government finally passed legislation allowing for undertakings for collective investments (Ucits) and real estate investment funds (REIFs) to be incorporated under the form of a company, named collective investment companies (called SIMs) and real estate investment companies (called SIIMOs), respectively, aiming at overcoming existing asymmetries between economic agents in the European Market, where these structures have long been available, and enhancing the competitiveness of the Portuguese economy.
SIMs and SIIMOs may both have a fixed or a variable share capital, and their incorporation is subject to the previous authorisation by the CMVM. The assets of SIMs and SIIMOs are subject to a mandatory deposit with a depositary. With regard to the management of SIMs and SIIMOs, the new legal regime provides flexible solutions, allowing for management duties to be carried out by internal corporate bodies or by a third party appointed for such purpose.
Finally, this new legal framework enables other types of investment funds to incorporate as companies, provided that such possibility is not forbidden by the specific legal rules that govern such funds.