Objectives and principles
The primary objective of supervision is to promote the stability of the financial system.
Whereas macroprudential supervision focuses on the financial system as a whole, microprudential supervision aims at:
- Ensuring the solvency and financial soundness of each institution in the long run, and thereby, the stability of the financial system;
- Ensuring the safety of the funds entrusted to the institutions.
Banco de Portugal pursues these objectives within the framework of the Single Supervisory Mechanism, of which it is a participant, in its capacity as national supervisory authority.
Notwithstanding its relevance, Banco de Portugal’s supervision does not exempt institutions from their responsibilities and does not replace the actions of the management body in its management and supervisory functions, the internal control system or the external auditor.
Institutions shall provide guarantees of sound and prudent management in the long term, with a healthy, responsible and prudent attitude towards risk. They shall ensure compliance, substantially and continually, with all prudential requirements set out in the law, safeguarding their own solvency, financial soundness and the safety of the funds entrusted to them.
As microprudential supervisor, Banco de Portugal ensures that the institutions meet their obligations, and intervenes with a view to rectify any breaches, but not relieving the institutions of their responsibilities, especially from having robust and efficient governance models and internal control systems.
Banco de Portugal conducts its microprudential supervisory activity in line with Portuguese and European Union legislation and following international best practice. The revised document of the Basel Committee on the Core Principles for Effective Banking Supervision as well as European Banking Authority (EBA) rules and guidelines form the supervisory pillars of the financial sector.
Banco de Portugal exercises microprudential supervision, within the framework of the Single Supervisory Mechanism, based on the following principles, among others:
- Intrusiveness, proactivity and timeliness: Banco de Portugal closely monitors institutions, where necessary through on-site inspections (at the premises of the supervised institutions), and takes proactive and timely action with a view to mitigating the potential risks of the institutions under its supervision;
- Proportionality: The Bank takes into consideration the size and complexity of the activities of the institutions under its supervision;
- Focus on risk: Banco de Portugal adjusts its activity to the risk profile of the institutions under its supervision;
- Harmonisation of supervisory practices: Banco de Portugal interprets and implements prudential rules in a consistent and coherent manner;
- Critical attitude and independence;
- Accountability: Banco de Portugal is accountable to the different stakeholders, subject to its duty of professional secrecy (Article 80 of the Legal Framework of Credit Institutions and Financial Companies);
- Alignment with international best practices: Banco de Portugal monitors and incorporates international best practices in this field in its supervisory exercise;
- Legality: Banco de Portugal acts in strict compliance with the law.