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CMVM announces amendments to the Portuguese Securities Code, the Legal Framework for Audit Supervision and the Statutes of the Portuguese Securities Market Commission



31 December 2021

Amendments to three diplomas were published in the Official Gazette. These are key components for the CMVM's action and for the development of the Portuguese capital market. The amendments reflect, insofar as they follow the CMVM's proposals, its commitment over the past few years towards simpler, more objective, clearer, and proportional regulation that promotes investor protection and encourages market development, competitiveness, and efficiency.

The amendments to the Portuguese Securities Code will come into force 30 days after its publication which occurred today, 31 December. Today, the CMVM sent a circular note to the supervised issuing entities explaining the main amendments. On the same date, amendments to the Statutes of the Portuguese Securities Market Commission will also come into force.

Novelties on the Legal Framework of Audit Supervision (LFAS) will come into force 30 days after its publication which occurred today, 31 December, except for the text provided in Article 3 of the LFAS which comes into force on 1 January 2022.

 

Revision of the Securities Code (SC)

The transversal revision of the Securities Code aims to respond to the needs of companies and investors by increasing competitiveness and development of the Portuguese capital market. This revision simplifies and reduces regulatory burdens and barriers, while seeking to provide the market and its agents with innovative mechanisms that can make it more suitable for the development of the economy, safeguarding investor protection and market integrity.

To that end, the national legal framework was aligned with that of the European Union, eliminating additional requirements and national specificities that are likely to drive away international investors - the elimination of the public company status (exclusively regulating the "listed" company form), and the removal of the 2% reference threshold for qualifying holdings bring ours closer to the European reality, facilitating greater investment interest in national listed companies and, with it, an increase in the liquidity of the respective securities. 

In order to encourage access to the market by companies that do not use it yet as a means of funding, obtaining capital through the public issuance of shares became more attractive, specifically addressing the issue of fear of control loss, invoked by national entrepreneurs of not resorting to the capital market - on the one hand, because it is now accepted that future listed companies may issue plural-voting shares, facilitating the maintenance of shareholder control by the founders or key investors (who retain shares with increased voting power); on the other hand, because in the context of successive transfers of control positions within the same family circle, it is acceptable that the successor takes on the pre-existing control position without being confronted with the alternative of launching a Public Takeover Bid (TOB) or reducing the participation in a position that does not confer control.

In the same way of facilitating the entry of new companies into the market, a clear framework is foreseen for market exit via opting-out from trading, thus bringing predictability as to the assumptions on which it depends while also safeguarding the rights of minority shareholders who are not in favour of this exclusion.

Additionally, the possibility of market funding is also fostered by providing a clearer framework for the review of public offers - giving greater flexibility to the issuer that launched an offer to react to variations in market conditions - by increasing the threshold below which the publication of prospectuses is not required – from €5m to €8m –, as well as through the possibility that prospectuses can be written in English, with summaries in Portuguese.

Seeking to provide increased competitiveness, dynamism and efficiency to the domestic market, a comprehensive review of the framework for public offerings of securities is carried out, guided by principles of flexibility, proportionality, and speed. In that scope, the application of the TOBs is restricted to companies with shares admitted to trading on a regulated market, excluding public debt offers from this legal framework, which is a further example of the Portuguese market's alignment with the requirements in force in most European jurisdictions, the procedure applicable to competing TOBs is also clarified in order to favour its emergence for the benefit of the target companies' shareholders and an attempt is made to shorten, also for the benefit of target company shareholders, the period for obtaining authorisations for launching a TOB by including a maximum period.

In the convergence between the relevant realities for issuers and financial intermediaries, and bearing in mind efficiency and cost reduction objectives, as well as the fundamental role that  intermediaries play in boosting the capital markets ecosystem, the obligation on issuers to contract assistance and placement services in public offerings, is eliminated; on the other hand, the mandatory liability of financial intermediaries for the content of the prospectus is eliminated, which, by aligning the national framework with that of most European countries, allows for a reduction in intermediation costs. 

With the purpose of promoting an active intervention by shareholders in the affairs of companies, the exercise of their rights is more agile and facilitated, particularly in the context of participation and voting at general meetings. On the one hand, it is no longer required to send two participation statements. Communication to the financial intermediary is the only requirement; on the other hand, with the provision of certificates of legitimacy issued by financial intermediaries, beneficial owners of shares who, under Portuguese law are not considered holders of those shares, may now directly exercise their voting rights without incurring in additional registration fees for financial intermediaries and without affecting the safety of securities' circulation.

Lastly, the costs of all supervised entities in their relationship with the CMVM were simplified and reduced by improving and concentrating in a single regulation, the framework for suspension of administrative procedures and suspension, cancellation, and revocation of registration acts, which was dispersed in over more than a dozen regulations and in introducing an electronic notifications framework.

 

Legal Framework for Audit Supervision (LFAS)

Guided by the principles of simplification and efficiency, the LFAS' review provides for a reduction in the number of public interest entity categories, allowing for a more focused supervision on more complex entities with greater systemic risk, with efficiency gains and unnecessary cost reduction while simultaneously safeguarding the quality of global supervision and investor protection.

With regard to Statutory Auditors (SROC), aimed at strengthening supervisory skills in order to foster their efficiency, the LFAS' revision now gives the CMVM supervisory powers over the suitability and qualification requirements and professional experience of the members of the governing bodies and the suitability of non-statutory auditors (ROC). Additionally, the CMVM is empowered to draw up the necessary regulations on supervising the suitability, qualification, and professional experience of the members of the governing bodies and the suitability of the SROC partners.

The rules on the registration of auditors with the CMVM and its sanctioning framework were also revised.

 

The CMVM Statutes

The amendment to the CMVM statutes ensures, on the one hand, greater compliance with the framework of the Law on Regulatory Entities and, on the other, the diversification of the CMVM's revenues, in line with the financing models in force of other national regulators and of foreign counterparts.

In order to reinforce equity in the effort to finance the CMVM's supervisory activities, in exceptional situations that may require additional human, technological or other resources from the CMVM, depending on the complexity of the supervisory action in question, these costs are now borne by the supervised entities that originate said. Likewise, the CMVM is now able to demand from the Investor Compensation System, reimbursement of costs generated by its use of technical services and the allocation of extraordinary resources that this actioning usually implies.

The partial allocation to the supervisor of the fines' proceeds and the economic benefit seized in administrative infraction proceedings allows for the costs of the proceedings to no longer be borne by all the supervised entities through supervisory fees when these costs only originate from the offenders.




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