Opinion of the European Central Bank of 11 October 2001 at the request of the Portuguese Ministry of Finance on a draft decree law amending the legal framework of credit institutions and financial companies (CON/2001/32)
Date: 2001-10-11
Institutions: European Central Bank
Subjects: European System of Central Banks, Portugal, central bank, electronic money, financial institution, financial stability, financial supervision, holding company, payment system, trade licence

EN

OPINION OF THE EUROPEAN CENTRAL BANK

of 11 October 2001

at the request of the Portuguese Ministry of Finance

on a draft decree law amending the legal framework

of credit institutions and financial companies

(CON/2001/32)

1.

On  10  July  2001  the  European  Central  Bank  (ECB)  received  a  request  from  the  Portuguese

Ministry of Finance for an opinion on a draft decree law (hereinafter referred to as the ‘draft

decree law’), which amends the legal framework of credit institutions and financial companies

approved  by  Decree  Law  No  298/92  of  31  December  (‘Regime  Geral  das  Instituições  de

Crédito e Sociedades Financeiras’).

2. 

The  ECB’s  competence  to  deliver  an  opinion  is  based  on  Article 105(4)  of  the  Treaty

establishing the European Community and the third and sixth indents of Article 2(1) of Council

Decision  98/415/EC  on  the  consultation  of  the  ECB  by  national  authorities  regarding  draft
legislative  provisions1,  as  the  legislative  proposal  contains  provisions  dealing  with  national

central  banks  and  with  rules  applicable  to  financial  institutions  which  can  have  a  material

influence on the stability of financial institutions and financial markets. In accordance with the

first  sentence  of  Article  17.5  of  the  Rules  of  Procedure  of  the  ECB,  this  opinion  has  been

adopted by the Governing Council of the ECB.

3. 

The  draft  decree  law  provides  for  a  comprehensive  review  of  the  legal  framework  of  credit

institutions  and  financial  companies  in  Portugal.  The  draft  decree  law  addresses  five  main

aspects.  First,  it  restates  the  central  banking  tasks  of  the  Banco  de  Portugal  within  this  legal

framework,  which  are  relevant  for  the  surveillance  and  oversight  of  markets  and  markets

infrastructure.  Secondly,  it  updates  the  list  of  types  of  credit  institutions  and  financial

companies and introduces the definition of electronic money institutions as credit institutions,

which  corresponds  to  a  partial  implementation  of  Directive  2000/28/EC  of  the  European

Parliament and of the Council of 18 September 2000 amending Directive 2000/12/EC relating

1

OJ L 189, 3.7.1998, p. 42.

                                                          
to the taking up and pursuit of the business of credit institutions2. Thirdly, the draft decree law

simplifies  the  authorisation  procedures  for  credit  institutions  and  financial  companies,

including the authorisation of subsidiaries of credit institutions located in third countries to the

European  Union.  Fourthly,  the  draft  decree  law  contains  a  number  of  provisions  aimed  at

enhancing  the  framework  for  the  conduct  of  prudential  supervision.  These  include  rules

regarding  the  notification  of  qualified  holdings  in  credit  institutions  and  the  suspension  of

voting rights in cases of a failure to notify, the fitness and propriety of holders of such qualified

holdings  and  also  of  members  of  corporate  bodies,  the  supervisory  powers  of  the  Banco  de

Portugal  and,  lastly,  adjustments  relating  to  prudential  ratios  and  limits.  Finally,  the  draft

decree  law  modifies  certain  provisions  regarding  the  procedures  of  reorganisation  of  credit

institutions,  in  particular  by  enhancing  the  scope  of  the  supervisory  powers  of  Banco  de

Portugal  and  by  assigning  a  more  operational  role  to  the  Deposit  Guarantee  Fund.  The

following comments of the ECB regard primarily these aspects of the draft decree law. It may

be recalled that some of the proposed amendments to the legal framework of credit institutions

and  financial  companies  were  already  considered  by  the  ECB  in  its  Opinion  CON/99/15  of

27 October 1999 at the request of the Portuguese Ministry of Finance on two draft legislative

provisions  amending  (i)  the  legal  framework  of  credit  institutions  and  financial  companies

concerning the Deposit Guarantee Fund and (ii) the executive order governing the activities of

the Deposit Guarantee Fund.

4. 

First, in accordance with the proposed Article 92 of the draft decree law, the central banking

tasks of the Banco de Portugal defined in Article 13(1), Article 14 and Article 15 of its Organic

Law3  are  recalled  and  reproduced  in  the  legal  framework  of  credit  institutions  and  financial

companies  under  the  common  heading  of  ‘Guidance  and  surveillance’  (in  the  original

‘Orientação  e  fiscalização’).  The  ECB  understands  that  the  reference  to  these  functions

(namely  of  (i)  surveillance  of  the  monetary  and  foreign  exchange  markets;  (ii)  regulation,

oversight, and promotion of the smooth operation of payment systems; and (iii) collection and

compilation of monetary, financial, foreign exchange and balance of payments statistics) in the

context of the legal and supervisory framework of credit institutions  and  financial  companies

does not in any manner imply that they correspond to financial supervision functions. The tasks

enumerated in the proposed Article 92  are  typical  central  banking  tasks  and  therefore  remain

within  this  sphere.  For  this  reason,  the  ECB  considers  that  it  is  unnecessary  to  maintain  the

proposed Article 92 in the draft decree law and suggests the deletion of its contents. The mere

reproduction of central banking tasks assigned to the Banco de Portugal by its Organic Law and

their  re-classification  and  re-ordering  under  the  common  heading  of  ‘Guidance  and

surveillance’  does  not  seem  to  add  value  to  the  legal  framework  of  credit  institutions  and

financial companies and may not be seen as useful from the central banking perspective.

2 
3 

OJ L 275, 27.10.2000, p. 37.

Law No 5/98 of 31 January, as amended by Decree Law No 118/2001 of 17 April.

2

                                                          
5. 

Secondly, with regard to the introduction of electronic money institutions as credit institutions,

the  ECB  understands  that  the  authorisation  and  the  commencement  of  activities  of  electronic

money  institutions  may  only  be  allowed  when  the  relevant  special  legislation,  implementing

Directive 2000/46/EC of the European Parliament and of the Council of 18 September 2000 on

the  taking  up,  pursuit  of  and  prudential  supervision  of  the  business  of  electronic  money

institutions4 has been adopted in Portugal.

6. 

Thirdly, with regard to the simplification of the authorisation procedures for credit institutions

and  financial  companies,  including  the  authorisation  of  subsidiaries  of  credit  institutions

located  in  third  countries  to  the  European  Union,  the  ECB  welcomes  the  revised  procedures,

which  are  broadly  in  line  with  international  standards  regarding  the  licensing  of  credit

institutions.

7. 

Fourthly, the ECB welcomes the provisions of the draft decree law directed at enhancing and

reinforcing  the  supervisory  framework  for  credit  institutions  and  financial  companies.  In

particular, the ECB welcomes the revised concept of a qualifying holding, as established in the

proposed Article 13(7) of the draft decree law. The ECB also welcomes the reinforcement of

notification duties regarding qualified holdings, together with the suspension of voting rights in

cases  of  a  failure  to  notify  in  the  proposed  Articles  102  and  105,  respectively,  since  they

provide for an enhancement of the prudential tasks of the Banco de Portugal in this field. The

ECB welcomes the possibility, under the proposed Article 116(2), for the Banco de Portugal to

request special audits to be performed by independent entities. In addition, in accordance with

the  proposed  Article  120(6),  the  Banco  de  Portugal  may  also  request  credit  institutions  to

present  reports  on  prudential  supervision  prepared  by  specialised  entities.  The  ECB  believes

that these provisions, by providing a certain degree of flexibility, also enhance the effectiveness

of prudential supervision which may contribute to an increased integration of financial markets

in Europe, while respecting free competition among credit institutions.

8. 

The  ECB  notes  that,  in  accordance  with  the  proposed  Article  118(2),  the  Banco  de  Portugal

will be able to request a credit institution to abstain from engaging in an operation which may

lead  to  the  infringement  or  increase  the  gravity  of  an  infringement  of  prudential  rules  or,

alternatively, which may lead to the disregard of rules of prudent and sound management. The

ECB  recognises  the  need  to  provide  the  supervisory  authority  with  adequate  and  flexible

instruments to ensure the observance of prudential rules, with particular regard to institutions in

difficulty.  Notwithstanding,  the  attribution  of  such  broad  supervisory  powers  may  involve

certain  risks  for  the  Banco  de  Portugal  itself  since  it  may  be  seen  by  market  participants  as

being  entitled  to  oversee  the  credit  institutions'  managerial  decisions.  In  addition,  such

attribution  of  powers  should  also  not  give  rise  to  uncertainties  regarding  transactions  among

market  participants.  Therefore,  the  ECB  suggests  that  the  wording  of  the  proposed

4 

OJ L 275, 27.10.2000, p. 39.

3

                                                          
Article 118(2)  might  merit  some  clarification  in  order  to  reduce  the  potential  scope  of

supervisory influence over managerial decisions and market transactions.

9. 

The ECB takes note of the proposed Article 117A, according to which the Banco de Portugal

may declare subject to its supervision those entities that perform activities deemed relevant for

the  functioning  of  payment  systems.  The  ECB  understands  that  the  provisions  of  this  Article

will  not  limit  the  competences  of  the  Banco  de  Portugal  in  its  role  as  the  payment  system

overseer.

10.  Finally,  the  ECB  would  like  to  address  the  provisions  relating  to  the  procedures  of

reorganization  of  a  credit  institution  and  the  role  of  Deposit  Guarantee  Fund,  namely  the

proposed  Articles  142,  155,  158,  159  and  167-A.  The  main  purpose  of  these  provisions  is  to

enhance the supervisory powers of the Banco de Portugal relating to corrective action when an

institution fails to meet prudential requirements, to enlarge the scope of activities of the Deposit

Guarantee Fund, allowing for its intervention in situations of financial reorganisation of credit

institutions  and  to  provide  for  co-operation  between  the  Banco  de  Portugal  and  the  Deposit

Guarantee  Fund  in  such  situations.  The  ECB  would  like  to  recall  that  it  has  already  adopted

Opinion CON/99/15 on the substance of similar draft. The ECB therefore recalls some of the

comments put forward in that opinion, where applicable and with the necessary adaptations. 

11.  According to the legal framework of credit institutions and financial companies, the Banco de

Portugal  may  decide  to  take  exceptional  measures  whenever  the  interests  of  depositors,

investors and other creditors, or the safeguard of the normal functioning of the money, financial

and foreign exchange markets, are threatened. Among these measures, the  Banco  de  Portugal

may require the institution concerned to prepare a reorganisation plan, whose acceptance by the

Banco de Portugal may be made conditional upon a capital reduction or increase, or disposal of

shareholdings  and  other  assets.  The  draft  decree  law  allows  the  Banco  de  Portugal,  in  the

context of its intervention in the institution concerned, to invite the Deposit Guarantee Fund to

co-operate in the reorganisation process, particularly by granting monetary or financial support

or by participating in possible capital increases. The ECB considers that the amendments in the

proposed Article 142 of the draft decree law achieve this objective. 

12.  The ECB notes that, in relation to the amendments to Article 142, the Banco de Portugal will

have an extended  role  over  the  financial  reorganisation  of  a  troubled  institution.  Namely,  the

Banco  de  Portugal  may  present  an  intervention  plan  defining  a  capital  increase  and  further

requiring that the capital increase is preceded by the absorption of the institution’s losses by the

relevant  ‘positive’  items  of  own  funds.  The  Banco  de  Portugal  may  also  invite  the  Deposit

Guarantee Fund or other institutions to co-operate in the reorganisation process, in particular,

by granting adequate monetary or financial support, or through their participation in the capital

increase  decided  by  the  Banco  de  Portugal,  which  shall  be  also  responsible  for  guiding  and

defining  such  co-operation  in  terms  of  the  timeframe.  The  ECB  understands,  in  accordance

4

with the proposed Article 142(7), that such an  intervention  plan,  as  decided  by  the  Banco  de

Portugal  on  a  capital  increase,  does  not  give  rise  to  an  obligation  for  the  shareholders  of  the

institution or for any other investors and institutions, including the Deposit Guarantee Fund, to

indeed subscribe to a capital increase. 

13.  The ECB notes, in relation to the proposed Article 159(2), that the Banco de Portugal will be

able,  in  an  urgent  situation  and  under  the  conditions  laid  down  in  its  Organic  Law,  to  grant

temporarily to the Deposit Guarantee Fund the financial resources required to meet the latter’s

immediate  needs.  The  ECB  takes  note  that  the  financial  resources  granted  by  the  Banco  de

Portugal to the Fund under this provision are granted without prejudice to its obligations as part

of the ESCB and based on  adequate  collateral  (see  Articles  24(1)(c)  and  Article  25(b)  of  the

Organic  Law  of  the  Banco  de  Portugal).  In  this  context,  the  ECB  would  like  to  recall  that

according  to  Article  14.4  of  the  ESCB  Statute,  national  central  banks  may  perform  functions

other than those specified in the ESCB Statute unless the Governing Council of the ECB finds,

by a majority of two-thirds of the votes cast, that these interfere with the objectives and tasks of

the  ESCB.  The  ECB  does  not  anticipate  that  the  possibility  given  to  the  Banco  de  Portugal

under Article 159(2) would interfere with the objectives and tasks of the ESCB.

14.  The ECB notes, in relation to the proposed Article 167A(1) relating to financial support rules,

that the Deposit Guarantee Fund will be able to participate in operations deemed adequate to

put an end to situations of financial distress involving member credit institutions. Moreover, the

proposed Article 167A(2) provides that the Fund shall confine its financial support operations

to  the  cases  in  which  financial  distress  situations  are  likely  to  come  to  an  end  within  a  short

period  of  time,  the  objectives  are  clearly  outlined  and  defined  and  the  manner  in  which  the

Fund’s  support  will  end  is  specified.  In  this  respect,  the  ECB  notes  that  the  wording  of  the

proposed Article 167A(2), compared with the previous wording of this Article as discussed in

ECB Opinion CON/99/15, no longer specifies that the Fund shall confine its financial support

operations to situations which do not involve recourse to loans or to special contributions from

member  credit  institutions.  The  ECB  therefore  understands  that,  under  the  proposed

Article 159(2),  the  Banco  de  Portugal  may  also  grant  financial  resources  to  the  Deposit

Guarantee Fund for the purposes foreseen under the proposed Article 167A(1), which was not

the  case  under  the  previous  draft  presented  for  consultation  submitted  to  the  ECB  for  its

opinion.  Therefore,  the  Banco  de  Portugal  may  decide  to  grant  financial  resources  to  the

Deposit  Guarantee  Fund  in  order  to  finance  any  financial  support  operation  involving  credit

institutions to be carried out by the Fund. On this issue, the ECB considers that the possibility

that  the  Banco  de  Portugal  grants  financial  resources  to  the  Fund  should  in  practice  have  a

narrow  scope,  namely  where  systemic  stability  considerations  are  involved,  in  view  of  the

responsibilities of the Banco de Portugal as overseer of the stability of the Portuguese financial

system, in accordance with Article 12(c) of the Organic Law of the Banco de Portugal. Lastly,

the  ECB  welcomes  that  the  execution  of  any  financial  support  operation  by  the  Deposit

5

Guarantee Fund is made dependent on the Banco de Portugal’s confirmation of the adequacy of

the operation to resolve the situation in question.

15.  The ECB would also like to draw attention to the minimum reserve requirements imposed on

credit  institutions  by  Regulation  ECB/1998/15  of  1  December  1998  on  the  application  of

minimum  reserves5,  as  amended  by  Regulation  ECB/2000/86,  and  to  the  statistical  reporting

requirements  imposed  on  monetary  financial  institutions  by  Regulation  ECB/1998/167  of  1

December  1998  concerning  the  consolidated  balance  sheet  of  the  monetary  financial

institutions sector, as amended by Regulation ECB/2000/8. According to the present wording of

Regulation  ECB/1998/15,  the  ECB  may  exempt  from  minimum  reserve  requirements  an

institution  subject  to  winding-up  proceedings  or  reorganisation  measures8.  In  case  a  credit

institution continues to hold its authorisation while being subject to reorganisation measures, its

obligations as a reporting monetary financial institution (MFI) continue.

16.  The  ECB  confirms  that  it  has  no  objection  to  publication  of  this  opinion  by  the  competent

national authorities at their discretion.

Done at Frankfurt am Main on 11 October 2001.

The President of the ECB

[signed]

Willem F. DUISENBERG

5

6

7
8

OJ L 356, 30.12.1998, p. 1.

OJ L 229, 9.9.2000, p. 34.

OJ L 356, 30.12.1998, p. 7.
It is noted that Regulation ECB/1998/15 is currently under review.

6