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Frequently Asked Questions – Brexit

NB: Following the decisions adopted by the European Council on 22 March, 11 April and 29 October 2019, reference to the United Kingdom’s withdrawal from the European Union (EU) on 29 March, 12 April and 31 October 2019 should be read as 31 January 2020, in the absence of a ratified Withdrawal Agreement. 

In line with the decision adopted by the European Council on 29 October 2019, should the Withdrawal Agreement be ratified at any stage before 31 January 2020, the withdrawal of the United Kingdom (UK) from the EU will take place on the first day of the month following completion of the ratification procedures.

 

Rules on authorisations to carry out financial activities in Portugal

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 Banco de Portugal. These entities include credit institutions, investment firms, payment institutions and electronic money institutions. Currently, there is a number of these entities with head office in the United Kingdom and operating in Portugal through branches or under the freedom to provide services, and whose operations may indeed become affected by the United Kingdom’s withdrawal from the European Union. Payment institutions and electronic money institutions can still operate in Portugal through the use of agents or electronic money distributors.

The UK’s withdrawal from the EU means that entities with their head offices in that Member State will no longer have free access to the EU market (establishment of branches and freedom to provide services, and as well via networks of agents or electronic money distributors), as the UK will become a third country for the EU from that moment onwards. In case a transition period is agreed, this may lead to an extension of the rules currently governing access to the market for some time, as referred to below.

 

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 and whose activities are supervised by Banco de Portugal, are applications for authorisation automatic?

3. For institutions not authorised to provide services in Portugal after the UK’s withdrawal from the EU (no-deal Brexit), is there any transitional regime allowing such entities to continue to operate in Portugal temporarily?

4. What are the activities that UK entities may provide or carry out in Portugal under the transitional regime provided for in Article 8 of Decree-Law No 147/2019 of 30 September 2019?

5. Do entities wishing to benefit from the transitional regime provided for in Article 8 of Decree-Law No 147/2019 of 30 September 2019 have to submit any request for such purpose, or does the regime apply automatically?

6. What are the limitations or duties imposed on the entities benefiting from the transitional regime provided for in Article 8 of Decree-Law 147/2019 of 30 September 2019?

7. What is the duration of the transitional regime provided for in Article 8 of the Decree-Law?

8. What are the rules applicable to the provision of services in Portugal in relation to the activities covered by Article 8 of Decree-Law after 30 December 2020?


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 current rules on market access will remain temporarily in force if a deal (once formally approved and ratified) is secured between the EU and the UK, establishing a transition period. After the transition period, EU law will cease to apply to the UK.

In a scenario where no transition period is agreed, institutions with head office in the UK will be considered third country entities and the rules described below will be applicable.

Institutions with head office in the UK with a subsidiary in the European Economic Area (EEA, comprising EU Member States, Norway, Iceland and Liechtenstein), may, via this subsidiary, exercise the right of establishment and the freedom to provide services to carry out activities and provide financial services in Portugal (after notifying the supervisory authority of the country where the subsidiary is established of the intention to carry out activities in Portugal).

 

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

No. Entities that wish to continue to operate in Portugal, including by pursuing a new regulated activity (with new contracts being concluded with customers), must submit their applications for authorisation to Banco de Portugal, as described under question 8, having particular attention to the rules relating to time limits.

 

3. For institutions not authorised to provide services in Portugal after the UK’s withdrawal from the EU (no-deal Brexit), is there any transitional regime allowing such entities to continue to operate in Portugal temporarily? 

Through Decree-Law No 147/2019 of 30 September 2019, contingency measures were approved to be applied in the event of a no-deal Brexit, including in the field of financial services (henceforth, “Decree-Law”). 

Within the scope of Banco de Portugal's powers, Article 8 of the Decree-Law ensures and clarifies, in particular, that contracts governing the acceptance of deposits or other repayable funds, credit operations, payment services and issuance of electronic money, which are subject to the supervision of Banco de Portugal and which have been concluded by credit institutions, payment institutions and electronic money institutions before the UK’s withdrawal from the EU, under the freedom of establishment and the freedom to provide services, remain in force, along with the rights and obligations of each party. 

The regime mentioned above does not exempt the relevant institutions from initiating an authorisation process if they wish to continue to operate in Portugal under the rules applicable to third country entities.

With regard to the scope of the Decree-Law in the field of financial services, in addition to the activity carried out by credit institutions, payment institutions and electronic money institutions subject to the supervisory powers of Banco de Portugal, the Decree-Law also governs investment services and activities, as well as insurance activity. 

In relation to investment services and activities, particular attention should be paid to Article 3 of the Decree-Law and, where applicable, the powers conferred to the Portuguese Securities Market Commission (CMVM), as the competent authority for the supervision of these services and activities, subject to other obligations of credit institutions and investment firms provided for in that Article in particular and in the Decree Law in general.

 

4. What are the activities that UK entities may provide or carry out in Portugal under the transitional regime provided for in Article 8 of Decree-Law No 147/2019 of 30 September 2019? 

In addition to establishing – for the sake of legal certainty and clarity – a principle of continuity of the contracts concluded prior to the UK’s withdrawal from the EU, the Decree-Law (Article 8(2)) provides for the possibility of relevant entities to carry out operations and provide services, which are ancillary or instrumental in nature, under a pre-existing main contract. In fact, the regime allows the possibility of concluding contracts with customers residing in Portugal after the UK’s withdrawal from the EU, provided that such contracts prove necessary to carry out the services previously agreed with those customers, under a pre-existing main contract. In no case may such contracts lead to the provision of new services in Portugal or the conclusion of contracts with new customers. 

Entities wishing to benefit from this regime are responsible for ensuring that the requirements and conditions applicable to operations and/or ancillary or instrumental contracts are met. 

 

5. Do entities wishing to benefit from the transitional regime provided for in Article 8 of Decree-Law No 147/2019 of 30 September 2019 have to submit any request for such purpose, or does the regime apply automatically? 

Entities wishing to benefit from the regime provided for in Article 8(1) and (2) of the Decree-Law (above) must notify Banco de Portugal of their intention within three months of the entry into force of that Decree-Law. 

Without prejudice to the aforementioned time limit, entities wishing to benefit from the transitional regime provided for in Article 8 are advised to notify Banco de Portugal as soon as possible from the moment the Decree-Law enters into force (i.e. when a no-deal Brexit occurs) in accordance with Article 12. 

Banco de Portugal will regulate the content of the notification provided for in Article 8(4) of the Decree-Law in due time.

 

6. What are the limitations or duties imposed on the entities benefiting from the transitional regime provided for in Article 8 of Decree-Law 147/2019 of 30 September 2019? 

The entities that perform contracts in the Portuguese territory under the transitional regime provided for in Article 8 of the Decree-Law must comply with all legal and regulatory rules applicable to the carrying out of those operations in Portugal.

For the fulfilment of its functions, Banco de Portugal may request any information it needs from the relevant entities about the operations carried out in Portugal. 

Banco de Portugal may also take a decision to terminate the transitional regime provided for in Article 8 of the Decree-Law in the event of non-compliance with the obligation to provide information referred to in the previous paragraph, without prejudice to Article 53 of the Legal Framework of Credit Institutions and Financial Companies (Portuguese acronym: RGICSF). 

 

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

This regime, which will only apply in case of a no-deal Brexit, will be in force until 31 December 2020.

 

8. What are the rules that govern the authorisation processes regarding third country entities that wish to provide financial services in Portugal?

In case of a no-deal Brexit, after 31 December 2020 the rules applicable to third country entities will be applied to UK entities wishing to provide services in Portugal, including entities that may benefit from the contingency regime provided for in the Decree-Law. 

Applicable rules on this matter are conditional on the type of entity and the legal form under which these entities intend to operate in Portugal. The rules applicable to authorisations of third country entities of different types, within the scope of Banco de Portugal's powers, are detailed below.  

 

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 Banco de Portugal, along with the items listed in Article 17 of the RGICSF.  The credit institution authorisation process lasts for six months from the date when 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 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 European passport scheme, 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 an EEA member country, it may send to 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, authorities must, within three months of receiving the information sent by the credit institution, communicate it to Banco de Portugal. Before the branch of a credit institution starting any activity, 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 credit institution and, if necessary, indicate the conditions under which such business may be pursued 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 Banco de Portugal, within one month of receipt of this information.
  • Establish a branch. For the establishment of a branch of a third country credit institution, the supervisory authority of the said third country must send to 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, 57(2), and 59 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 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

 

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 Banco de Portugal, along with the items listed in Article 17 of RGICSF, with due note to Article 199-C of RGICSF.  The investment firm authorisation process lasts for six months from the date when 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.
  • Establish a branch, under the European passport scheme, 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 to the competent authorities of the subsidiary's home Member State a branch passport notification via the aforementioned subsidiary, setting out the items listed in Article 49(1) of RGICSF, other than those provided for in subparagraphs (d), (e) and (f), subject to Article 199-E of 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 member country. 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 RGICSF will 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 RGICSF). The restrictions provided for by 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 RGICSF to Banco de Portugal. The conditions set out in Article 199-FA of RGICSF must also be met. The branch authorisation process lasts for six months from the date when 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, the investment firm must submit an application for authorisation and registration with 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 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 (Article 23 of RJSPME).
  • Establish a branch, use agents or electronic money distributors, or pursue business under the freedom to provide services through the European passport scheme, 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 to 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 agents or electronic money 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 Banco de Portugal. Within one month of receipt of the information by the home Member State’s competent authorities, 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.
  • 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 from non-EU countries, 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 RGICSF, mutatis mutandis, to Banco de Portugal. The branch authorisation process lasts for three months from the date when 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.

 

UCITS management companies

In Portugal, the pursuit of business by UCITS management companies is conditional on authorisation and registration with Banco de Portugal and subsequent registration with the CMVM. However, under Decree-Law No 144/2019 of 23 September 2019, Banco de Portugal’s responsibility for the prudential supervision of these management companies will be transferred to the CMVM with effect from 1 January 2020.