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Legal alert no. 15

Legal Alert regarding the Understanding of the Investors Compensation Scheme on the remission of subparagraph a) of n. 1 of article 9 of Decree-Law n. 222/99, of 22 June, to n. 1 of article 30 of the Portuguese Securities Code

On 3 January 2017, the Portuguese Securities and Exchange Commission (CMVM) published a document called “Understanding of the Investors Compensation Scheme on the remission of subparagraph a) of n. 1 of article 9 of Decree-Law n. 222/99, of 22 June, to n. 1 of article 30 of the Portuguese Securities Code”, which aims to clarify the doubts that have been raised to the referred Investors Compensation Scheme, regarding the question of knowing if the exclusion of the qualified investors covers the entities described in n. 1 of article 30 of the Portuguese Securities Code (“PSC”) in its current wording.

Decree-Law n. 222/99 transposed to the Portuguese legal order the Directive 97/9/EC, of the European Parliament and of the Council, of 3 March 1997, related to the investors compensation schemes.

In accordance with the provision of this Directive, although the Member States could exclude from the coverage of the compensation schemes the large companies (i.e. the companies that because of their size are not authorized to prepare balance sheets in accordance with article 11 of the Fourth Directive 78/660/EEC of the Council, of 25 July 1978), the Portuguese State has decided not to establish such exclusion.

In 2009, some articles of Decree-Law n. 222/99 were amended by article 4 of Decree-Law n. 162/2009, of 20 July, such as, the subparagraphs a) to c) of article 9 related to the credits excluded from the Investors Compensation Scheme. Therefore, the subparagraph a) of article 9 now foresees the exclusion from the coverage of the Investors Compensation Scheme of “credits resulting from investment transactions held by the qualified investors referred to in n.1 of article 30 of the Securities Code, whether they act in their own name or on behalf of clients, or public sector entities”.

In 2009, at the date of the amendment of the above mentioned article 9, article 30 of PSC considered as qualified investors the following entities: (i) credit institutions; (ii) investment companies; (iii) insurance undertakings; (iv) collective investment entities and the respective management companies; (v) pensions funds and the respective management companies; (vi) other authorized or regularised financial institutions, such as credit securitization funds; vii) financial institutions of States non-members of the European Union which carry out activities similar to the activities referred to in the previous points; (viii) entities which trade in financial instruments on goods; (ix) national and regional governs, central banks and public bodies which manage public debt, international and supranational institutions, namely the European Central Bank, the European Investment Bank, the International Monetary Fund and the World Bank. In other words, the companies, regardless their size, and all qualified investors not fitted in the above mentioned subparagraphs remain covered by the protection of the Investors Compensation Scheme, as resulted from the referred reference made therein.

However, in 2013, Decree-Law n. 18/2013, of 6 February amended the above mentioned article 30 of PSC, now foreseeing a sole concept of qualified investor, applicable both for purposes of the public offers regime and for purposes of the rules regarding conduct duties in the financial intermediation activities. Consequently, article 30 of PSC now also covers, among others, the ”k) legal persons whose size, in accordance with the last individual accounts, satisfies two of the following criteria: i) Equity of two million euros; (ii) Total assets of 20 million euros; iii) Net turnover of 40 million euros”.   

It began then to be discussed which entities were excluded from the coverage of the Compensation Scheme, (i) the entities described in article 30 of PSC in the wording in force in 2009 or (ii) the entities described in the current article 30 of PSC.

In this context, CMVM, in the understanding now published, clarifies that, although article 30 PSC has been amended, considering that (i) the main goal of the amendment was the transposition of European Union directives, which is outside of the scope of the Investors Compensation Scheme and (ii) since the guidelines used by the Portuguese legislator in the transposition of the Directive 97/9/EC were not amended, the Directive Commission of the Investors Compensation Scheme resolved that the relevant concept of qualified investor, for purposes of applying article 9 of Decree-Law n. 222/2009, is the concept foreseen in article 30 in the wording in force in 2009 and not in its current wording.

Therefore, considering the understanding of CMVM above presented, the credits resulting from investment transactions held by, among others, large companies (companies which fulfil the requirements referred above in subparagraph k) of article 30 of PSC in its current wording) are not considered as credits excluded from the coverage of the Investors Compensation Scheme.

To access the full text of the CMVM Understanding, please click on the following hyperlink - http://www.cmvm.pt/pt/AreadoInvestidor/SistemaDeIndemnizacaoAosInvestidores/RecomendacoesEEntendimentos/Pages/entendimentoSII_20171222.aspx

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