Committee on Budget, Finance and Administrative Modernisation
Initial Address by Governor Carlos da Silva Costa1
23 March 2017
Madam Chair,
Members of Parliament,
I called for this hearing following a series of reports on television about the
monitoring work undertaken by Banco de Portugal - as supervisory authority -
on Banco Espírito Santo (BES) in the months leading up to its resolution in August
2014. These reports gravely misrepresented the reality of that monitoring,
explicitly discrediting Banco de Portugal's exercise of the supervisory function.
As I stated in my letter to this Committee, it is my responsibility as Governor
of Banco de Portugal to defend the reputation of the institution and protect
public confidence in the effectiveness of banking supervision. I see it as my duty to
restore the truth behind these facts and to clarify what the reports
deliberately ignore, making myself accountable to the Assembly of the
Republic.
In my view it is undeniable that, from the outset, Banco de Portugal was committed
to being accountable to the Assembly of the Republic, transparently and in good
time, in regard to the resolution of BES. Banco de Portugal actively collaborated with
the Parliamentary Committee of Inquiry in fact-checking, by providing several
depositions, and an immense set of documents that was requested.
In this initial address, I see it as important to clarify three questions raised in these
reports and explored intensely in the ensuing public debate.
First question: Why was the Board of BES not removed sooner?
The law assigns responsibility to Banco de Portugal, as supervisory authority, for
assessing whether the members of the management and supervisory boards of
credit institutions meet conditions of:
- reputation;
- availability;
- and professional qualification, suitable for guaranteeing sound and prudent
management of the credit institutions.
In carrying out that function, Banco de Portugal permanently monitors all the
information that is relevant for verifying those requirements.
In the specific case of assessing the suitability of members of the Board of Directors
of Grupo BES, the note mentioned in the reports in question, dated November
2013, is part of this permanent monitoring exercise of all the relevant
information, and was drafted on request of the Board of Directors of Banco de
Portugal.
This note involves personal information which is subject to the right of privacy
and which came to Banco de Portugal's knowledge as a result of its
supervisory function, and is thus subject to the duty of professional secrecy by
law. For this reason, access to the document in question could only be provided to
the Parliamentary Committee of Inquiry with the authorisation of the people
referred to therein. This was the only reason why this note was not submitted
to the Parliamentary Committee of Inquiry.
Thus, contrary to what has been insinuated, this note serves to prove that
Banco de Portugal was analysing all situations that could influence the
suitability assessment of members of the Board of Directors of BES.
However, as I have been constantly emphasising and is already on record, namely
within the scope of the Parliamentary Committee of Inquiry, Banco de Portugal's
decisions to prevent the carrying out of professional functions are subject to
stringent legal conditions. These conditions effectively lay down specific factual
prerequisites and, at the same time, the observance of general rules of procedure,
proof and reasoning, governing the work of the public authority.
At the end of 2013, in relation to the problems coming to light and receiving
news coverage for the first time, Banco de Portugal did not have the necessary
factual proof that - within the legal framework then applicable and given the very
restrictive jurisprudence of the higher administrative courts - would allow a
formal process to be opened to reassess the suitability of the members of the
Board of Directors in question. This is made clear in the note quoted in the report,
when it mentions that the information existing at that time had to be duly verified
and confirmed for the purposes of any actions in terms of suitability. At no time did
that information warrant the immediate removal of any member of the Board
of Directors of BES, or even the immediate opening of a process to that end.
What should be emphasised here, to remove all doubt, is that as a result of that and
other information, the competent services in Banco de Portugal undertook
work to obtain confirmation of potentially relevant facts for the suitability
assessment, both regarding those concerned - namely through the exchange of
written communications and through face-to-face meetings - and regarding other
entities.
In this assessment process (as was fully outlined to the Parliamentary Committee of
Inquiry), Banco de Portugal did not approve the registration requests to carry
out functions in other Grupo BES entities, which culminated in - after calling
for successive explanations and clarifications from the members of the Board in
question, both written and face-to-face - the withdrawal of those requests by the
individuals themselves in March and April 2014.
In parallel, Banco de Portugal implemented actions to ensure the close
involvement of all members of the Board of Directors and Board of Auditors
of BES, as well as external auditors, in fulfilment of the determinations issued as
a result of the supervisory exercise. I would like to re-emphasise that the Board of
Directors of BES comprised 25 members, the large majority of which had vast
experience in the banking sector, and included representatives of other major
shareholders in addition to Grupo Espírito Santo.
Among these actions, I would like to point out the various interactions with
Crédit Agricole - BES's key shareholder - requiring a succession plan for the
Board of Directors, with the appointment of an independent Board. This
process led to the presentation by Mr. Ricardo Salgado, in mid-April 2014, of a
schedule for his succession, and a plan based on the departure of the family
members from the executive body of BES.
This was all clearly documented in information provided to the Parliamentary
Committee of Inquiry.
Second question: Was the document delivered by BPI to Banco de
Portugal on GES's financial situation followed up?
On 1 August 2013, BPI delivered to Banco de Portugal an economic assessment of
GES, with special focus on Espirito Santo International (ESI).
The claim that Banco de Portugal ignored this document and shelved it is false.
In fact, the information contained in BPI's document was incorporated:
- In the scope of supervisory investigations undertaken on Grupo ESFG;
and
- In the context of ETRICC2 - the review of the major economic groups that
are the banking system's debtors - which was under preparation by Banco
de Portugal in early August 2013.
I would also like to remind Members of Parliament that, as a result of the conclusions
of the three horizontal supervisory initiatives undertaken since 2011, Banco de
Portugal decided to deepen the evaluation of the business plans of major economic
groups that were the banking system's debtors, with a view to confirming that they
were based on solid assumptions - the so-called ETRICC2. I must add that this
exercise - which may now seem common or trivial - was, at the time,
unprecedented in Europe, in terms of its breadth and depth in the field of
supervision.
The non-financial arm of Grupo Espírito Santo was among the 12 economic groups
selected. At the end of November 2013, this exercise detected that the accounts
published up to then by the Group's holding company - ESI - did not reflect
their actual financial nature. I must stress that this accounting noncompliance
had not yet been reported by anyone - neither the Board of Directors of BES,
nor audit firms, nor any other regulator or supervisor, nor any creditor
institution of GES, nor any other individual.
Again, I would like to stress that all this, including the evaluation of BPI, was
in due time shared with the Assembly of the Republic, in the context of the
Parliamentary Committee of Inquiry.
Third and last question: How did Banco de Portugal act regarding
the internal control problems in ESFG's subsidiary in Dubai?
Considering that ES Bankers Dubai is a subsidiary of ESFG in Dubai, Banco de
Portugal had no mandate to exercise its supervision on an individual basis,
although the subsidiary was included in the perimeter of supervision on a
consolidated basis. The subsidiary was solely subject to supervision by Dubai's
supervisory authority (Dubai Financial Services Authority - DFSA), both in
prudential terms and regarding money laundering prevention.
However, within the scope of the cooperation process between supervisory
authorities, Banco de Portugal took the initiative to establish various
interactions with DFSA.
As part of these interactions, DFSA informed Banco de Portugal of a number of
shortcomings in the internal control mechanisms implemented in Dubai's
subsidiary, also referring to doubts about the origin of the funds invested in
GES entities. In addition, DFSA informed Banco de Portugal of the corrective
measures imposed.
In view of this information, Banco de Portugal called on ESFG to be informed on
the state of implementation of the corrective measures imposed on said
subsidiary and of the underlying implementation timeline.
In parallel, contact was maintained with DFSA, in order to stay informed about
the implementation of the corrective measures imposed.
Before concluding, let me note that, despite the constraints existing at the time
regarding Banco de Portugal's powers to withdraw the suitability status (arising
both from the law and jurisprudence), Banco de Portugal at each moment was
strongly committed to making rigorous and careful use of the means
permitted by law. A posteriori, and benefitting from the knowledge and
information currently available, it is easy - and tempting - to question supervisory
action and to claim that supervision could have been carried out differently.
However, I firmly believe that, under the extreme complexity of the context in
which it had to be conducted, supervision deserves recognition for always
having been carried out in a diligent and decisive manner.
I am now at your disposal for questions.
Thank you.