Financial Crime World

Portuguese Financial Regulation Compliance: A Snapshot of National Authorities and Regulated Activities

Portugal’s financial sector is regulated by three specialized authorities: the Bank of Portugal, the Securities Commission (CMVM), and the Supervisory Authority for Insurance and Pension Funds (ASF). In this article, we provide an overview of the regulatory framework, authorities, and their areas of jurisdiction.

Regulatory Framework

The financial sector in Portugal is regulated by:

  • The Bank of Portugal - responsible for supervising credit institutions, financial companies, payment institutions, and electronic money institutions. It regulates bank deposits, housing loans, consumer credit, corporate credit, and other credit except for finance transactions in financial instruments.
  • The Securities Commission (CMVM) - regulates financial intermediaries operating within the securities market and undertakings for collective investments. It oversees organized trading of financial instruments, public offers of securities, clearing and settlement of related transactions, and central securities depositories.
  • The Supervisory Authority for Insurance and Pension Funds (ASF) - regulates insurance and reinsurance activities, brokering of insurance and pension funds, and related activities.

Registration and Authorization Regime

To incorporate a financial services firm in Portugal, such as credit institutions, financial intermediaries, collective investment undertakings, insurers, reinsurers, and pension fund management companies, prior authorization and registration with the relevant regulatory authority are necessary. These entities must submit an authorization request containing required elements. Decision timelines and subsequent notifications to European regulatory bodies vary among authorities:

  • The Bank of Portugal: six months
  • The CMVM: 30 days
  • The ASF: three months

Management and supervisory bodies of the abovementioned entities are also subject to prior approval and registration.

The jurisdiction of each authority is based on:

  • The Bank of Portugal: Law No. 5/98 and the Portuguese Credit Institution and Financial Companies Legal Framework (Decree-Law No. 298/92)
  • The ASF: its by-laws and various laws, including the Insurance and Reinsurance General Framework (Law No. 147/2015) and the Pension Funds and Respective Management Entities General Framework (Decree-Law No. 12/2006)
  • The CMVM: its by-laws and the Portuguese Securities Code (Decree-Law No. 486/1999)

Principal Laws and Financial Service Authority Rules

The Portuguese legal framework for financial services firms and their associated persons is heavily influenced by EU legal instruments. The primary regulatory framework includes:

  • RGICSF for credit institutions
  • CVM for financial intermediaries
  • Notices, instructions, and circular letters issued by the authorities

Scope of Regulation

Regulated financial services providers and products in Portugal are subject to:

  • Authorization and registration
  • Business conduct rules
  • Capital and liquidity rules
  • Information duties
  • Corrective actions and interim administration rules
  • Anti-money laundering rules

Additional Requirements

There is no established tradition of self-regulation by market participants in Portugal. Certain regulated entities may self-regulate activities they manage within the limits of the law, subject to registration or notification to the CMVM.

Investigatory Powers and Enforcement

National financial services authorities, including the Bank of Portugal, the CMVM, and the ASF, have extensive powers to examine and investigate regulatory compliance. They can conduct on-site inspections, request any information, and examine registry books, ledgers, and documents upon a court warrant. Penalties for regulatory breaches include public disclosure, replacement of entities failing to maintain market functioning, and administrative, civil, or criminal penalties.

Compliance Programs

Portuguese law requires financial entities to adopt internal structures and policies ensuring compliance and supervision. Boards of directors are responsible for implementing these structures.

Gatekeepers (Chief Compliance Officer and Internal Auditor)

Gatekeepers, such as chief compliance officers and internal auditors, monitor and supervise compliance by financial entities.

Directors’ Duties and Liability

Directors of financial services firms in Portugal are subject to general standard of care and specific duties for financial entities. They may be held individually accountable for financial services firms’ activities, leading to civil, administrative, or criminal liability.

Private Rights of Action

There are no private rights of action for violations of national financial services authority rules and regulations.

Standard of Care for Customers

Financial entities and authorized persons must adhere to the highest level of diligence when dealing with retail customers, informing them about risks, fees, and policies.

Consultation Process and Cross-border Regulation

The regulatory authorities advise the government on policy-making, with the Bank of Portugal holding significant influence through its role in implementing monetary policy and supervising liquidity. The CMVM conducts public consultations when adopting or amending regulations.

Cross-border regulation allows authorized foreign financial entities to perform activities in Portugal under EU legislation. Foreign entities planning to establish a branch or representative office in Portugal must comply with Portuguese legal provisions.

International Standards

International standards influence the Portuguese financial jurisdiction but do not have binding force. Authorities may deviate from these standards if deemed necessary.