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Frequently Asked Questions – Brexit

 

Rules on authorisations to carry out financial activities in Portugal

The Banco de Portugal has developed a set of answers to frequently asked questions (FAQs) for entities that carry out, or intend to carry out, activities in Portugal subject to authorisation from the Banco de Portugal. These entities include credit institutions, investment firms, payment institutions and electronic money institutions. Payment institutions and electronic money institutions can also operate in Portugal through the use of electronic money agents or distributors.

The withdrawal of the United Kingdom (UK) from the European Union (EU) meant that entities with their head offices in that State would no longer have free access to the EU market (establishment of branches and freedom to provide services, as well as via networks of electronic money agents or distributors), as the UK became a third country for the EU from that moment onwards. However, the existence of a transition period led to an extension of the rules governing access to the market and the pursuit of business until 31 December 2020.

 

These FAQs are no substitute for consulting the relevant legal texts in force.

 

1. Will institutions with head office in the UK be able to continue to provide financial services in Portugal following the UK’s withdrawal from the EU?

2. For institutions with head office in the UK that wish to continue operating in Portugal after the transition period, and whose activities are supervised by the Banco de Portugal, are applications for authorisation automatic?

3. Does the trade and cooperation agreement reached by the EU and the UK on 24 December 2020 have implications for financial services?


1. Will institutions with head office in the UK be able to continue to provide financial services in Portugal following the UK’s withdrawal from the EU?

The rules on market access remained temporarily in force given the existence of a formally approved and ratified deal between the EU and the UK, establishing a transition period until 31 December 2020. 

However, once the transition period ended, EU law ceased to apply to the UK and institutions with head office in the UK are now considered third country entities and the rules described in question 2 became applicable, without prejudice to the following paragraph.

Institutions with head office in the UK may continue to carry out their activities, but only under the terms of Decree-Law No 106/2020 of 23 December 2020, which approves measures to ensure an appropriate transition after the UK leaves the internal market. The aforementioned Decree-Law therefore establishes that credit institutions, payment institutions and electronic money institutions with head office in the UK and operating in Portugal under the right of establishment and the freedom to provide services may continue to take the steps necessary for the performance and fulfilment of contracts on the acceptance of deposits, granting of credit, payment services and issuance of electronic money concluded by 31 December 2020. After the end of the transition period, on 31 December 2020, these entities may only conclude new contracts or carry out new operations on these activities in Portuguese territory if granted authorisation by the Banco de Portugal under the framework applicable to third country entities.

Consequently, as stated in the Banco de Portugal press release of 30 December 2020 on Brexit, on 1 January 2021 the following were deleted from the register of institutions: credit institutions, payment institutions and electronic money institutions (including networks of agents and distributors) with head office in the UK and authorised to operate in Portugal under the EU passporting regime, as well as entities with head office in Portugal as regards their authorisation to operate in the UK under the EU passporting regime..

 

2. For institutions with head office in the UK that wish to operate in Portugal after the end of the transition period, and whose activities are supervised by the Banco de Portugal, are applications for authorisation automatic?

No. Entities that wish to pursue a regulated activity in Portugal (with new contracts being concluded with customers) must submit their applications for authorisation to the Banco de Portugal, as described below, paying particular attention to the rules relating to time limits.

 

Credit institutions

Credit institutions with head office in a third country that wish to pursue business in Portugal may:

  • Set up a subsidiary. In this case, the credit institution must submit an application for authorisation and registration with the Banco de Portugal, along with the items listed in Article 17 of the Legal Framework of Credit Institutions and Financial Companies (Regime Geral das Instituições de Crédito e Sociedades Financeiras – RGICSF). The credit institution authorisation process lasts for six months from the date when the Banco de Portugal receives all evidence and information necessary for a proper examination of the application, and up to 12 months of the initial application. Although the application must be submitted to the Banco de Portugal, the European Central Bank is the competent authority to grant authorisations to credit institutions, under the remit of the Single Supervisory Mechanism.
  • Establish a branch, under the EU passporting regime, in case there is already a subsidiary in an EU Member State or in an European Economic Area (EEA) member country. If a credit institution with head office in a third country has a subsidiary in an EU Member State or an EEA member country, it may send the competent authorities of the subsidiary's home Member State a branch passport notification, via the aforementioned subsidiary. Unless the competent authorities of the home Member State have reasons to doubt the adequacy of the administrative structure or the financial situation of the credit institution, taking into account the activities envisaged, they must, within three months of receiving the information sent by the credit institution, communicate it to the Banco de Portugal. Before the branch of a credit institution starts any activity, the Banco de Portugal must, within two months of receiving that information from the competent authorities of the home Member State, prepare for the supervision of the branch on matters within its remit, after which it shall inform the credit institution that it may establish the branch, and if necessary it will indicate the conditions under which, in the interest of the general good, the branch shall carry out its activity in Portugal.
  • Pursue business under the freedom to provide services, in case there is already a subsidiary in an EU Member State or in an EEA member country. If a credit institution with head office in a third country has a subsidiary in an EU Member State or in an EEA member country, it may send a notification of intent to pursue business in Portugal, under the freedom to provide services, to the competent authorities of the subsidiary’s home Member State. The competent authorities of the home Member State must communicate the information submitted by the credit institution to the Banco de Portugal, within one month of receipt of this information.
  • Establish a branch. For the establishment of a branch by a third country credit institution, the supervisory authority of said third country must send the Banco de Portugal a communication (accompanied by the application for authorisation) setting out all the items listed in Article 17(3), Article 49 and Article 58(2) of the RGICSF. Articles 45, 54, 57(2), and 59 of the aforementioned RGICSF are also relevant for the pursuit of business by third country branches in Portugal. The branch authorisation process lasts for six months from the date when the Banco de Portugal receives all evidence and information necessary for a proper examination of the application, but no more than 12 months from the date of the initial application.

 

Investment firms

Investment firms with head office in a third country that wish to pursue business in Portugal may:

  • Set up a subsidiary. To this end, the investment firm must submit an application for authorisation and registration with the Banco de Portugal, along with the items listed in Article 17 of the RGICSF, with due note to Article 199-C of the RGICSF. The investment firm authorisation process lasts for six months from the date when the Banco de Portugal receives all evidence and information necessary for a proper examination of the application, but no more than 12 months from the date of the initial application.
  • Establish a branch, under the EU passporting regime, in case there is already a subsidiary in an EU Member State or in an EEA member country. If an investment firm with head office in a third country has a subsidiary in an EU Member State or an EEA member country, it may send the competent authorities of the subsidiary's home Member State a branch passport notification (for the aforementioned subsidiary) in Portugal, setting out the items listed in Article 49(1) of the RGICSF, other than those provided for in subparagraphs (d), (e) and (f), subject to Article 199-E of the RGICSF. The competent authorities of the subsidiary’s home Member State must submit a passport notification to the Portuguese Securities Market Commission (Comissão do Mercado de Valores Mobiliários – CMVM).
  • Pursue business under the freedom to provide services, in case there is already a subsidiary in an EU Member State or in an EEA . If an investment firm with head office in a third country has a subsidiary in an EU Member State or in an EEA member country, it may send a notification of intent to pursue business in Portugal, under the freedom to provide services, to the competent authorities of the subsidiary’s home Member State, via the aforementioned subsidiary, which must then submit the notification to the CMVM.
  • Provide services at the exclusive initiative of the customer. The authorisation requirement referred to in Article 199-FB of the RGICSF does not apply to third country investment firms that provide services due to the exclusive initiative of the customer, whether these are professional or retail customers, within the meaning of the Portuguese Securities Code (Article 199-FD of the RGICSF). The restrictions provided for in Article 199-FD of the RGICSF must be fully complied with.
  • Establish a branch. For the establishment of a branch of a third country investment firm, the home country’s supervisory authority must send a communication setting out all the items listed in Article 199-FB(4), Article 58(2) and Article 49 of the RGICSF to the Banco de Portugal. The conditions set out in Article 199-FA of the RGICSF must also be met. The branch authorisation process lasts for six months from the date when the Banco de Portugal receives all necessary evidence and information for a proper examination of the application.

 

Payment institutions and electronic money institutions

Payment institutions and electronic money institutions with head office in a third country that wish to pursue business in Portugal may:

  • Set up a subsidiary. To this end, they must submit an application for authorisation and registration with the Banco de Portugal, along with the items listed in Article 19 of the Legal Framework for Payment Services and Electronic Money (Portuguese acronym: RJSPME). The payment institution/electronic money institution authorisation process lasts for three months from the date when the Banco de Portugal receives all evidence and information necessary for a proper examination of the application, but no more than 12 months from the date of the initial application (Article 23 of RJSPME).
  • Establish a branch, use electronic money agents or distributors, or pursue business under the freedom to provide services through the EU passporting regime, if these entities already have a subsidiary in the EU. In this case, the payment institution or electronic money institution, via its subsidiary established in an EU Member State, may send the competent authorities of the subsidiary's home Member State a passport notification to provide services in Portugal, either under the freedom to provide services or the freedom to establish a branch, the use of electronic money agents or distributors, provided that these services are covered by the authorisation granted to the subsidiary. Within one month of receipt of all necessary information, the competent authorities of the home Member State must send it to the Banco de Portugal. Within one month of receipt of the information by the home Member State’s competent authorities, the Banco de Portugal must assess the aforementioned information and provide all relevant information for the provision of services as set out by the institution to the competent authorities of the home Member State. Any institutions authorised in another Member State may commence their activity in Portugal as soon as the competent authority of the home Member State notifies them of its decision to register the branch, agent or distributor of electronic money, as well as pursue their activity under the freedom to provide services.
  • Establish a branch (only permitted in the case of electronic money institutions). Portuguese law does not allow for the establishment in Portugal of a branch of third country payment institutions. It does, however, provide for the establishment of branches of electronic money institutions with head office in a third country, under the scheme envisaged in Article 47 of RJSPME. For the establishment of a branch of a third country electronic money institution, the supervisory authority of the home country must send a communication setting out all the items listed in Article 49(1) and Article 58(2) of the RGICSF, mutatis mutandis, to the Banco de Portugal. The branch authorisation process lasts for three months from the date when the Banco de Portugal receives all evidence and information necessary for a proper examination of the application, but no more than 12 months from the date of the initial application.

 

UCITS management companies

Under Decree-Law No 144/2019 of 23 September 2019, the Banco de Portugal’s responsibility for the prudential supervision of these management companies was transferred to CMVM with effect from 1 January 2020.. 

 

3. Does the trade and cooperation agreement reached by the EU and the UK on 24 December 2020 have implications for financial services?

No. The coverage of the Agreement in terms of financial services is fairly limited, in line with other EU trade agreements, including the usual prudential measures and excluding provisions on the cross-border provision of services, which will continue to be regulated by unilateral equivalence decisions and national frameworks. 

As regards regulatory cooperation, the EU and UK have agreed on a joint statement, with the aim of establishing a durable and stable relationship, relying on dialogue, cooperation and coordination, while a Memorandum of Understanding establishing the framework for this cooperation is expected to be adopted by March 2021.