29.12.2020

Practice Areas: Finance

Industries: Banking & Financial Services

Transitional regime applicable to financial entities based in the United Kingdom

Bearing in mind the end of the transition period approved by the Withdrawal Agreement of the United Kingdom on 31st December 2020, the DL106/2020 was published on 23rd December which approved the transitional regime applicable to the provision of financial services in Portugal by entities headquartered in the United Kingdom, which may continue to do so in Portugal until 31st December 2021, thus avoiding disruption to services and activities provided in Portugal to investors and other consumers of financial services.

The aforementioned Decree Law was published with the end of the transition period of the Withdrawal Agreement of the United Kingdom from the European Union (Brexit) on 31st December 2021 (the Brexit transition period) in mind and regulates the way in which credit institutions, investment companies, insurance companies, payment institutions and electronic money institutions authorised in the United Kingdom that act in Portugal under the freedom of establishment and the free provision of services, may continue to provide services after the Brexit transition period, similar to the previous Decree Law 147/2019 of the 30th September 2019, published before the signing of the Withdrawal Agreement.

 

Services and investment activities

Credit institutions and investment companies authorised in the United Kingdom that act in Portugal under the freedom of establishment and the free provision of services, that intend to continue to provide services in Portugal, have three months from the end of the transition period to send to the CMVM by email to the address brexit@cmvm.pt the form in annex to the Decree Law as Annex I containing a description of the entity, services provided, passport date, programme of activities, among other details, indicating if they intend to terminate the ongoing contracts or request authorisation to maintain activities in Portugal – with the authorisation request to be presented to the competent authority (CMVM or the Bank of Portugal, as applicable) within six months. The entities that don’t do this will only be able to execute necessary operations for the termination of ongoing contracts and must cease activity in Portugal by 31st December 2021.

 

Collective investment undertakings

Management companies headquartered in the United Kingdom that are authorised to provide services to collective investment undertakings that act in Portugal under the freedom of establishment and the free provision of services that intend to continue to provide services in Portugal have three months from the end of the Brexit transition period to send to the CMVM by email to the address brexit@cmvm.pt the form in annex to the Decree Law as Annex II containing the description of the management company, passport date, programme of activities, including the identification of alternative investment funds trading in Portugal among other details, indicating if they intend to terminate the ongoing contracts or request authorisation to maintain activities in Portugal – with the authorisation request to be presented to the CMVM within six months. The entities that don’t do this will only be able to execute necessary operations for the termination of ongoing contracts and must cease activity in Portugal by 31st December 2021.

 

The Decree Law further establishes that collective investment undertakings domiciled in the United Kingdom that are distributed in Portugal at the date of the end of the Brexit transition period may continue to be distributed in Portugal, with the respective management company having three months from the end of the Brexit transition period to send to CMVM the items mentioned in Annex III concerning the fund.

 

Insurance contracts

Insurance contracts between insurance companies headquartered in the United Kingdom with authorisation to exercise insurance activity in Portugal before the Brexit transition period, that cover risks situated in Portugal or those to which Portugal is the commitment member-state continue to be valid up until the date of the end of the contract - they cannot be extended after the end of the Brexit transition period and without prejudice of being amended to the benefit of the policyholder or when the change results from the application of the mandatory legal norm.

To that end, insurance companies must send to the ASF, by email, information about the contracts held in their portfolio in the terms mentioned above and in accordance with the format of Annex IV of the Decree Law, including information about the insurance portfolio and measures of transfer of the insurance contracts to a business authorised to carry out the activity in the European Union, up until two months from the end of the Brexit transition period, information which should be renewed annually by the 31st March.

 

Banking activity, payment services and issue of electronic currency

Credit institutions, payment institutions and electronic money issuers headquartered in the United Kingdom that act in Portugal under the freedom of establishment and the free provision of services will only be able to sign contracts or carry out new operations in Portugal relating to the receipt of deposits, granting of credit, payment services and issue of electronic money after the end of the Brexit transition period, if they have obtained prior authorisation from the Bank of Portugal in the terms of the regime envisaged for third country entities being able to, without prejudice, perform necessary acts of execution and fulfilment of contracts relating to the aforementioned services or activities that have been contracted up until the end of the Brexit transition period, including the provision of services of an accessory or instrumental nature to the principal pre-existing contract celebrated by a client resident in Portugal and that aren’t new operations or contracts.

 

Prior authorisation must be requested within the period of three months after the Brexit transition period to the Bank of Portugal in the format of Annex V of the Decree law by email to brexit.notificacoes@bportugal.pt, including information about the interested entity and current contracts (number and amount).

 

Common representative of bondholders

An entity authorised to provide services of representation of investors in the United Kingdom that has been nominated within the scope of an issue of securitised bonds, mortgage bonds or other bonds, may continue to exercise the activity of common representative of bondholders in Portugal up until the maturity of the issue or of the issue programme, provided that the issue or the issue programme has a defined term when the Decree-Law comes into force and the designation occurred before the end of the transition period covered in the Brexit transition period – the current regime ceases to apply in the case of extension of issue period or of the issue programme.

 

The current Decree law came into force on the day following that of its publication and is effective from 1st January 2021, if on this date no agreement was reached between the United Kingdom and the European Union or an equivalence decision that regulates the matters covered by this Decree-Law, ending on December 31, 2021 (except with respect to the matter of the bondholders' representative).

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