The new legal framework of investment firms
On the 10th of December Decree-Law no. 109-H/2021 was published approving the regulatory framework for investment firms (hereinafter “IF”) and transposing Directive (EU) 2019/2034 of 27 November on the prudential supervision of investment firms.
The IF regime is set out in annex to this Decree-Law. For this purpose, investment firms "are legal persons which, not being credit institutions, have as their main activity the provision of investment services to third parties or the performance of investment activities on a professional basis provided for in the Portuguese Securities Code".
Additionally, Investment Firms may provide ancillary services foreseen in the Portuguese Securities Code (hereinafter the 'PSC') and investment advice on structured deposits and fall within the financial intermediary regime, and, as such, the PSC regime applies in what is not specifically provided for in this regime.
This regime establishes the prudential requirements for the incorporation and operation of the IF. Thus, we highlight the main applicable provisions:
- As a general rule, IFs take the form of a public limited company, however, they may be private limited companies if they carry out the activity of investment advice exclusively.
- IFs must have a minimum initial share capital of no less than EUR € 75,000.00 or € 150,000.00, when, respectively, carrying out activities or providing services of dealing on own account and underwriting and/or placing financial instruments on a firm commitment basis, or carrying out cumulatively activities of dealing on own account and of running organised trading systems and, if they provide services of reception and transmission of orders on behalf of clients in relation to one or more financial instruments, execution of orders on behalf of clients in relation to one or more financial instruments, portfolio management of financial instruments, investment advice in financial instruments and unsecured placement of financial instruments, and are not allowed to hold client funds or securities belonging to their clients and when they perform, or provide activities or services other than those aforementioned.
- The IF incorporated under this regime must have its main and effective management in Portugal.
- The incorporation of an IF, as well as, the change of scope of the authorised activities, is subject to the supervision and authorisation of the Portuguese Securities Market Commission (hereinafter the "CMVM") under the terms of the European Union regulations regarding the authorisation of these undertakings.
- The requirements for the development of cross-border activities by IFs registered in Portugal, as well as, for IFs registered in another Member State through the mechanism of free provision of services or free establishment.
- IFs are bound by European Union legislation when they include, in the services provided, objectives related to sustainability.
- IFs must have own funds no less than those calculated in accordance with the European Union legislation on prudential requirements for investment firms.
- They must implement and maintain an internal organisation with internal control mechanisms, administrative and accounting procedures that enable CMVM to assess, at all times, their compliance with the provisions of this regime and with European Union legislation on the prudential requirements of the investment firms.
- Regarding the system of corporate governance, the IFs must have a sound, adequate, effective and proportional to the nature, scale and complexity of the risks inherent to the business model and activities carried out by them, namely, effective processes for identifying, managing, controlling and communicating risks and remuneration policies and practices compatible with sound and effective risk management.
- The management and supervisory bodies must comply with suitability, experience, and availability criteria for the functions which they will perform. For this purpose, they must be subject to previous and continuous assessment by the CMVM of the compliance with the applicable requirements to perform these functions.
- The holders of qualifying holdings, that is, the persons who intend to acquire 20%, 33% or 50% of an IF, calculated in accordance with the CVM rules, must comply with suitability requirements and, as such, are subject to the CMVM's prior and continuous assessment.
The legal framework of investment firms also provides that the CMVM will regulate and develop the matters foreseen herein, among which are the requirements to hold positions in corporate bodies, as well as the prior authorisation procedure and the duty to communicate to the CMVM the acquisition of qualifying holdings.
This decree-law has also amended a set of legal diplomas, including the Legal Framework of Management Companies of Regulated Markets, the General Framework of Credit Institutions and Financial Companies and the Legal Framework of the Design, Commercialisation and Provision of Consulting Services on Structured Deposits.
With the publication of this decree-law the following regulations are revoked: decree-laws no. 110/94 of 28 April, no. 163/94 of 4 June, no. 262/2001 of 28 September, no. 357-B/2007 of 31 October and ordinance no. 1619/2017.
To access to the entire wording of Decree-law no. 109-H/2021 of 10th of December please click here (in Portuguese).
For more information on this subject, please contact:
Head of the Banking and Finance Department