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Prudential rules

The Legal Framework of Credit Institutions and Financial Companies establishes the conditions concerning the taking-up and pursuit of the business of credit institutions and financial companies in Portugal, as well as the supervision of these entities, and supervisory powers and instruments. 

At prudential level, the Legal Framework largely reflects the legislation in force in the European Union, which was based on the standards defined by the Basel Committee on Banking Supervision in the Basel II and Basel III Accords.


Basel Accords (II and III)

The Single Rulebook

Basel Accords (II and III)

The Basel Committee on Banking Supervision has established itself over recent decades as the primary global standard-setter of prudential regulatory policy. 

This Committee has been responsible for defining different standards on which international banking regulation is based, with focus on Basel II and III, which form the basis of the European Union legislation in this field.

Basel II

Basel II, implemented in the European Union in 2006 and 2007 through Directives 2006/48/EC and 2006/49/EC, structures banking regulation in three pillars:


Pillar 1 – Minimum capital requirements

Pillar 1 was established in order to make the prudential framework created by Basel I more sensitive to risk, changing the rules for the calculation of minimum capital requirements. 

In addition to calculating minimum capital requirements for credit risk and market risk (including minimum capital requirements regarding foreign exchange risk and commodities risk), it specifies the definition of capital requirements for operational risk.

It enables more sophisticated institutions, under certain conditions and when authorised by their respective supervisory authorities, to use their own management and risk assessment methodologies to calculate minimum capital requirements.

Simplified illustration of Pillar 1

Pillar 2 – Supervisory Review and Evaluation Process

Pillar 2 sets out the ‘supervisory process’ concept, which combines a set of principles essentially intended to reinforce the interaction between institutions under supervision and the respective supervisors.

On the one hand, these principles encourage institutions to adopt strategies, procedures and control mechanisms designed to calculate and maintain levels of internal capital appropriate to the nature and size of the risks incurred.  

On the other hand, supervisory authorities (including Banco de Portugal and the European Central Bank, in the SSM context) are responsible for assessing the quality of such strategies, procedures and control mechanisms, and for imposing corrective measures where the capital held is deemed inconsistent with the risk profile of these institutions – see the Supervisory Review and Evaluation Process (SREP). 

These principles cover the risks that are not covered or are only partially covered by Pillar 1 requirements, namely credit concentration risk and interest rate risk in the banking book.

Pillar 3 – Market discipline

Pillar 3 introduced requirements for the disclosure of information by institutions to the public (i.e. customers, counterparties, investors, analysts) regarding solvency and other items describing the respective risk profiles, in order to ensure effective market discipline.

In particular, market participants shall have at their disposal information to reward or penalise the institutions’ management practices, through their influence on costs/borrowing capacity and capital valuation.

Improvements to Basel II

From Basel II to Basel III a number of improvements were introduced, particularly as regards Pillar 1’s treatment of securitisations and the supervisor’s analysis and review process (Pillar 2). 

As regards Pillar 2, the Basel Committee guidelines aimed to remedy a number of deficiencies observed during the financial crisis in areas of the institutions’ risk management processes. They cover internal governance and risk management of institutions, capturing off-balance-sheet risk exposures due to securitisation activities, credit concentration risk management, incentives for better management of risks and returns in the long term and best practice in compensation packages. 

Pillar 3 requirements (market discipline) were also strengthened in some key areas.

Basel III

Basel III arose with the purpose of improving the banking sector’s capacity to absorb shocks due to adverse economic and financial scenarios.

For this purpose, it introduced a stricter definition of regulatory capital (own funds), defined for the first time harmonised liquidity requirements at international level, by means of two new metrics – one short-term (liquidity coverage ratio) and the other medium-term (net stable funding ratio) – and added to the list of prudential measures a prudential requirement complementary to the capital adequacy ratio based on risk-weighted assets, translated into a forecast of the leverage ratio.

Basel III also introduced capital buffer requirements, of both a structural and countercyclical nature, in order to strengthen the resilience of institutions and promote the internalisation of possible costs for the financial system.

Basel II standards and the most recent Basel III standards were adopted in the European Union through a Regulation and a Directive that are known as CRR and CRD IV respectively:

  • Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June, (Capital Requirements Regulation or CRR);
  • Directive 2013/36/UE, of the European Parliament and of the Council of 26 June (Capital Requirements Directive or CRD IV).

The Regulation must be applied in its entirety across the EU. In Portugal, CRD IV was transposed through Decree-Law No 157/2014 of 23 October 2014, whose provisions were included in the Legal Framework of Credit Institutions and Financial Companies.

The Single Rulebook

The Single Rulebook creates a single set of harmonised prudential rules to be complied with by European Union institutions.

The expression Single Rulebook was defined in 2009 by the European Council to refer to the purpose of defining a standardised regulatory framework for the financial sector in the European Union, with a view to implementing a single market for financial services.

The European Banking Authority (EBA) plays a key role in the construction of the Single Rulebook in the banking sector:

  • It was mandated to prepare binding technical standards for the implementation of the CRD IV and BRRD package;
  • It issues guidelines for institutions or supervisors;
  • It provides assistance on the Single Rulebook.


Binding technical standards

Binding technical standards (BTSs) are regulatory rules specifying aspects of European Union legal texts (Directives or Regulations), with a view to their standardised implementation. BTSs may be regulatory technical standards (RTSs) or implementing technical standards (ITSs).

The draft BTSs prepared by the EBA are adopted by the European Commission as regulations or decisions, thereby becoming legally binding in all Member States.



The EBA issues Guidelines that are addressed at institutions or their supervisors, whether or not arising from special mandates set out in first level regulation. 

Competent institutions and authorities shall do everything within their power to comply with the Guidelines. A procedure has been established in which Banco de Portugal, the European Central Bank and the other competent authorities responsible for supervision must state their compliance or explain their non-compliance with the EBA Guidelines (‘comply or explain’ procedure).



The EBA coordinates the replies to clarification requests on the ‘Single Rulebook’ formulated by stakeholders on the practical implementation of the CRD IV and BRRD package, and also on regulatory technical standards and Guidelines.


Interactive Single Rulebook

On its website the EBA has an interactive compendium on the CRD IV package and the corresponding binding technical standards, guidelines and questions and answers.




The Capital Requirements Regulation establishes uniform rules concerning general prudential requirements to be complied with by credit institutions and investment firms subject to supervision by Banco de Portugal and the European Central Bank in the context of the Single Supervisory Mechanism, namely:

  • Own funds requirements relating to entirely quantifiable, uniform and standardised elements of credit risk, market risk, operational risk and settlement risk;
  • Requirements limiting large exposures;
  • Liquidity requirements relating to entirely quantifiable, uniform and standardised elements;
  • Reporting requirements;
  • Public disclosure requirements.

The Capital Requirements Directive IV sets out rules related to:

  • The taking-up of the business of credit institutions and investment firms;
  • Supervisory powers and tools for the prudential supervision of credit institutions and investment firms by competent authorities;
  • The prudential supervision of credit institutions and investment firms by the competent authorities in a manner that is consistent with the rules set out in the CRR;
  • Publication requirements for the competent authorities in the field of prudential regulation and supervision of credit institutions and investment firms;
  • Capital buffer requirements.

The Bank Recovery and Resolution Directive establishes a framework for the recovery and resolution of credit institutions and investment firms. Its provisions have been transposed into the Legal Framework of Credit Institutions and Financial Companies.  

It sets out rules on prudential supervision and requirements regarding:

  • Recovery planning; 
  • Early intervention measures;
  • Intra-group financial support.

The Legal Framework of Credit Institutions and Financial Companies establishes the conditions for the access to the activity of credit institutions and financial companies. It largely reflects Community Directives in this field, and covers the following aspects:

  • Authorisation and registration procedures;
  • Assessment of the suitability of qualifying shareholders;
  • Assessment of the suitability and professional qualifications of the members of the management and auditing boards;
  • Rules of conduct and relationship with clients;
  • Cooperation with other authorities;
  • Rules and prudential limits, including on capital buffer requirements;
  • Supervisory procedures;
  • Corrective measures, interim management and resolution;
  • Deposit guarantee;
  • Penalty framework.
Other regulation

Other regulations associated with credit institutions and investment firms

Savings banks: Legal Framework of Savings Banks – Decree-Law No 190/2015 of 10 September 2015 

Central agricultural credit bank and mutual agricultural credit banks: Legal Framework of Mutual Agricultural Credit – Decree-Law No 24/91 of 11 January 1991 (as amended) 

Credit financial institutions: Legal Framework of Credit Financial Institutions – Decree-Law No 186/2002, of 21 August 2002 

Mortgage credit institutions: Legal Framework of Mortgage Bonds and Mortgage Credit Institutions – Decree-Law No 59/2006 of 20 March 2006 


Other regulations associated with other financial companies 

Credit financial firms: Legal Framework of Credit Financial Firms - Decree-Law No 100/2015 of 2 June 2015 

Investment companies: Legal Framework of Investment Companies – Decree-Law No 260/94 of 22 October 1994 

Financial leasing companies: Legal Framework of Financial Leasing Companies – Decree-Law No 72/95 of 15 April 1995 

Factoring companies: Legal Framework of Factoring Companies and Factoring Agreements – Decree-Law No 171/95 of 18 July 1995 

Mutual guarantee companies: Legal Framework of Mutual Guarantee Companies – Decree-Law No 211/98 of 16 July 1998 

Regional development companies: Legal Framework of Regional Development Companies – Decree-Law No 25/91 of 11 January 1991 

Exchange offices: Legal Framework of Exchange Offices – Decree-Law No 3/94 of 11 January 1994  

Microcredit financial institutions: Legal Framework of Microcredit Financial Institutions – Decree-Law No 12/2010 of 19 February 2010 


Other regulations associated with payment institutions and electronic money institutions 

Payment institutions: Legal Framework of Payment Services and Electronic Money – Decree-Law No 91/2018 of 12 November 2018 

Electronic money institutions: Legal Framework of Payment Services and Electronic Money – Decree-Law 91/2018 of 12 November 2018