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Portugal’s Banking Sector: A Look into its Regulations and Requirements

The Portuguese banking sector is subject to a complex web of regulations and requirements, aimed at ensuring the stability and security of the financial system. In this article, we will delve into the key aspects of these regulations, including capital requirements, liquidity, leverage ratio, anti-money laundering and terrorism financing rules, and customer protection.

Capital Requirements

Portuguese credit institutions are required to maintain adequate levels of own funds, comprising Common Equity Tier 1 (CET1) capital, Tier 1 capital, and total capital. The CET1 capital ratio must be at least 4.5% of risk-weighted assets, while the Tier 1 capital ratio must be at least 6%. Additionally, credit institutions are required to maintain a capital conservation buffer of 2.5% and a countercyclical capital buffer (CCyB) between 0% and 2.5%.

Liquidity Requirements

Credit institutions must hold adequate liquidity buffers to face any possible imbalance in liquidity flows over a period of 30 days. To achieve this, they are required to meet a Liquidity Coverage Ratio (LCR) of at least 100% and a Net Stable Funding Ratio (NSFR) of at least 90%.

Leverage Ratio

Credit institutions must also maintain a leverage ratio of at least 3%, which is calculated by dividing the institution’s Tier 1 capital by its total assets.

Anti-Money Laundering and Terrorism Financing Rules

Portuguese credit institutions are required to implement effective anti-money laundering (AML) and counter-terrorism financing (CFT) measures, including customer due diligence, ongoing monitoring of transactions, and reporting suspicious activities. Additionally, they must comply with the EU’s 4th Anti-Money Laundering Directive.

Customer Protection

Credit institutions are required to adopt codes of conduct and disclose them publicly, which shall include the principles and rules of conduct underlying the bank-client relationship. They must also maintain effective procedures for handling customer complaints and keep demanding information duties when contracting with non-qualified investors.

Institutional Investors

Portuguese law defines institutional investors as entities that trade in securities, including credit institutions, investment companies, insurance companies, collective investment undertakings, pension funds, and securitisation funds.

Conclusion

The Portuguese banking sector is subject to a comprehensive set of regulations aimed at ensuring the stability and security of the financial system. Credit institutions must maintain adequate levels of capital, liquidity, and leverage, while also implementing effective anti-money laundering and terrorism financing measures and protecting customers’ interests. Understanding these requirements is crucial for ensuring the smooth operation of the banking sector in Portugal.

Sources:

  • Banking Law
  • BRRD II
  • European Union’s 4th Anti-Money Laundering Directive
  • Portuguese Securities Code (PSC)
  • Fundo de Garantia de Depósitos (FGD)