Questions and answers on digital investment for investors

​Publication date: 15.03.2021

These precautions are particularly important when the investor is the target of an unsolicited contact to invest and or when expectations of quick and very high profits are generated.

The CMVM has content available on its website that aims to share and raise awareness of these and other phenomena, namely a brochure and video on digital fraud, general recommendations for investors in the brochure “CMVM Tips for investors” as well as a area on financial innovation and a brochure on Fintech. 

2. What requirements must be met by entities wishing to provide financial intermediation services on digital financial instruments in Portugal?

Entities established in Portugal, wishing to provide financial intermediation services in Portugal, involving financial instruments, must apply for registration with the CMVM and are required to comply with the legislation in force. Another way for entities to be able to operate in our country is under the Free Service Provision (LPS) regime, better known as a European passport. In this case, it is necessary for the CMVM to be notified by the authority of the European Union country that authorised the entity.

Digital platforms wishing to provide investment services in financial instruments, such as the receipt and execution of orders, can only do so via financial intermediaries qualified to operate in Portugal, in the aforementioned manner (whether established in Portugal and authorised by the CMVM or qualified to provide services in Portugal under the LPS regime).

Entities that do not fall within these two categories are neither allowed to operate in Portugal, nor perform any type advertising or prospecting for investors in Portugal, on own account or by related agents who represent them. Consequently, the activity that these entities may carry out outside the established rules is not supervised and, as such, carries high risks for those who establish investment or similar relationships with them.

3. How may investors know whether certain entities are authorised to provide these services?

The CMVM makes available, on its website, information on all the entities that are authorised to provide services in Portugal, whether they are financial intermediaries or the identity of the tied agents to which financial intermediaries may resort. Other people who can also provide services in Portugal, such as independent financial analysts and independent investment consultants can also be consulted on the CMVM website.

This information can be consulted in an aggregated form on the warning notices page where, in addition to access to national and international warnings regarding unauthorised entities - non-exhaustive list -, you can also find an updated list of authorised entities:

• Entities authorised or registered with the CMVM for the exercise of financial intermediation activities in Portugal;
  
  
• Collective investment management companies authorised by the CMVM;

• Entities qualified to provide financial services in Portugal under the Free Service Provision (LPS) regime;

• Tied agents that represent the financial intermediary;
  
  
• Registered entities linked to venture capital, social entrepreneurship and specialised investment;
  
  
• Entities related to securitisation;
  
  
• Registered crowdfunding platform management entities.
  

You can also find the lists of independent financial analysts and authorised independent investment advisors on the CMVM website, under the Information Disclosure System menu.

Entities that are not included in the public records made available on the CMVM website are not authorised to provide any investment services in Portugal or to advertise or prospect for investors, therefore investors should not establish any investment relationships with them. This warning also applies to tied agents.

When it is not possible to clearly identify the entity that operates a particular website, it is important not to share any personal data or make any investments.

In case of doubt about whether an entity or tied agent can provide services in Portugal, you should contact the CMVM through the Investor Support Line (800 205 339) or one of the other means available on our website.
 

4. What are the consequences of investments via unauthorised entities?

Investors should be aware that the money delivered and invested through unqualified entities operating in Portugal is not covered by the compensation systems that protect deposits or compensation to investors and that these entities are not subject to scrutiny by national and European supervision. Thus, these investments do not benefit from any protection afforded to investors, so services related to financial instruments should never be contracted or any amounts given to entities that are not included in the lists of authorised or qualified entities (see questions 2 and 3).

The practice of the financial intermediation activity by an unqualified entity constitutes a very serious administrative infraction, punishable, among other sanctions, with a fine of up to € 5,000,000, according to the Securities Code. For the detection of these situations, complaints and requests for information submitted by investors or by people who suspect or have knowledge of situations that may fall into these situations, are relevant.

5. How can the investor know if trading of a certain asset is within the powers of the CMVM?

The CMVM supervises the market for financial instruments. Their powers and action are limited to assets legally classified as securities, namely shares, bonds, equity securities, units in collective investment undertakings (investment funds) and other financial products, including covered warrants, money market instruments (with the exception of payment means), derivative instruments for the transfer of credit risk, contracts for differences, options, futures, swaps, forward contracts and derivative contracts, among others, and emission allowance contracts, as defined in Articles 1 and 2 of the Securities Code.

Before investing in any products or entering into any so-called investment contracts, it is important that the investor makes sure that it is a financial instrument covered by the CMVM's supervision or that the product or contract is under the supervision of another financial supervisor, such as Banco de Portugal or the Insurance and Pension Funds Supervisory Authority. Prior to the decision to invest, the risk of investing in products or services that are not part of the supervisory scope of these authorities must be very well assessed (see question 4).

In case of doubt on whether an asset or financial instrument is within the scope and supervision of the CMVM, investors should contact the CMVM through the Investor Support Line (800 205 339) or by one of the other means available on our website.

6. Are bitcoin and other cryptoassets supervised by the CMVM?

Bitcoin and other cryptocurrencies (virtual currencies) are not supervised by the CMVM. The CMVM only supervises cryptoassets that can be legally qualified as securities or instruments equivalent to them (see previous question).

Information on the risks of investing in cryptoassets and its qualification as a security, including the requirements that a cryptoasset will have to meet in order to be considered as such, can be found in the Investor Area of the CMVM website in the form of two sets of questions and answers on cryptoassets designed for investors and supervised entities.

In short, and as per the CMVM’s warning in 2018, when investing in cryptoassets, investors should be aware of at least the following risks:

• Liquidity risk: investors may not be able to sell the cryptoassets they have purchased, as there are no interested buyers or suitable channels to do so.
  
  
• Risk of partial or total loss of invested amounts: the invested capital is not guaranteed, the risks associated with the investment may not be mentioned in the documents published by the issuer of the cryptoasset and may not be supervised instruments.
  
  
• Risk of insufficient available information: the information made available to investors may be missing, inaccurate, incomplete and unclear, requiring that people who intend to acquire them have high technical knowledge to be able to understand the characteristics of cryptoassets.
  
  
• Risk of fraud: the issuer of the cryptoasset often has more information than the investor about its risks and functioning; the inherent complexity of cryptoassets makes it difficult for investors to understand their operation and purpose.
  
  
• No specific regulation to protect investors from cryptoassets other than securities: it is necessary to analyse each case to determine whether or not cryptoassets are covered by the regulations applicable to the securities market and whether or not they are supervised.
  
  
• Most agents that sell cryptoassets are not based in Portugal: the resolution of conflicts may be outside the competence of the national authorities, which can unprotect national investors.
  
  
• Risk in the formation of cryptographic prices: the formation of the price is, in many cases, not transparent, and its assumptions are not known or knowable, so it may not correspond to the real market value of that cryptoasset.
  
  
• High volatility: the value of a cryptoasset is prone to sudden and large-scale changes.
  
  
• Risk of money laundering and financing of illegal activities: due to the anonymity associated with cryptoassets, there may be a concealment of the origin and destination of the invested funds.
  
  
• Risk of experimentation or innovation: projects financed through the issuance of virtual assets (ICO) are often in an initial phase, of implementation or development, or business models are still experimental.
  
  
• Risk of losing the access code to the cryptoassets: The loss of the access code may prevent the permanent movement of investment in the cryptoassets.

In 2018, the National Council of Financial Supervisors, warned investors to the risks associated with investing in virtual currencies and said warnings are mainly still valid.

7. Is the investor protected when trading in assets that are not regulated by the CMVM?

No. Hence, the CMVM has been warning on a relevant number of proposals presented to investors for investments in products that are not under its supervision. In these cases, therefore, investors do not have any protection from supervisors and are also exposed to high risks of fraud and scams.

8. What are the risks of investments based on information from social networks or online forums?

The CMVM has increased warnings on the significant risks that result from following information, indications and suggestions, sometimes implicit and often unsubstantiated, biased and incomplete, by third parties not authorised to provide investment services, namely advisory, consultancy, advertising or receiving and executing orders.

Investors should not make base their investment decisions on information that circulates on social networks or online forums. They should always validate the quality of that information, namely knowing its origin, the authors' intentions, checking if the entities in question are authorised or if they are within the scope of the competent authorities, understanding the products offered and whether there are any conflicts of interest.

Growing digitisation and globalisation in the providing investment services, combined with the confinement imposed by the pandemic, has led to an increase in the use of digital media by investors. And in the context of Covid-19, they have also added to situations of greater economic and social uncertainty, financial fragility and volatility in the markets. These situations are likely to jeopardize an adequate weighting of investment alternatives by investors, increasing the risk of fraud and weighted investment decision-making. For these reasons, the CMVM published guidelines for investors in 2020 on the importance of open markets, precautions be taken in the face of market volatility, common behavioural biases in times of turbulence and tips for facing increased risk of fraud, among others.

When the activity does not fall within the CMVM's activity scope, namely due to suspected swindling or fraud, the investor must file a complaint with the competent authorities, namely the Judiciary Police or the Public Prosecutor.

9. What powers does the CMVM have regarding the advertising of financial products and services and attracting customers by unauthorised entities?

As previously mentioned in question 4, according to the Securities Code, the professional practice of financial intermediation by an unqualified entity constitutes a very serious administrative infraction which is punishable, among other sanctions, with a fine of up to € 5,000,000, according to the Securities Code. Advertising and prospecting, when carried out by unqualified entities, is also punishable, with equivalent sanctions.

In addition to the sanction for the unauthorised exercise of financial intermediation, in the case of entities whose activities do not relate to instruments or practices under the supervision of the CMVM, the CMVM may refer the facts, elements and other relevant information to the competent authorities, namely to the Public Prosecutor, if there are signs of fraud, fraud or money laundering.

As for the entities that are registered and authorised to operate in Portugal, the CMVM monitors and supervises the activities carried out by them. This scope includes the advertising of financial products and services and attracting customers, which are limited to financial intermediaries and their related agents. They are regulated by the Securities Code, namely by Articles 7 on “Information Quality”, 292 on “Advertising and Prospecting”, and 366 on “Supervision relating to Advertising and General Contractual Clauses”. The law applies to advertising initiatives disseminated through any means, including digital.

10. What are the CMVM's powers on authorised digital platforms that attract Portuguese customers, but which are based in third countries? 

The responsibility for supervising financial intermediaries that manage electronic platforms for receiving orders registered in another Member State, lies primarily with the supervisory authorities of the country where the financial intermediary that owns the platform is domiciled. The supervision of the regular functioning of the market wherein the financial instruments are traded, however, rests with the supervisory authority of the country wherein the transaction market operates. To this extent, the CMVM often cooperates with its international counterparts, in Europe and outside Europe, in the context of the cross-border activity of financial intermediaries and investors.

This allocation of responsibilities advises investors to take special care when choosing to invest through platforms that are not managed by national financial intermediaries and to bear in mind the transaction markets.

Considering the increasingly global and digital nature of transactions, the CMVM publishes warnings issued by authorities in other countries regarding unauthorised entities that are operating in those jurisdictions, which can be consulted on this page.

Whenever an entity that is not qualified to engage in financial intermediation activities in financial instruments or other subject to authorisation by the CMVM in Portugal is detected, a warning to the market is issued. These warnings can be found on this page.

In strict compliance with the powers conferred on it by the law, the CMVM monitors and supervises the activities carried out by financial intermediaries and related agents registered with the CMVM.

11. What are the CMVM's powers of action regarding financial advice provided through social networks/influencers? What about classes, courses taught?

Training courses and other training activities do not, in themselves, constitute activities that fall within the competence of the CMVM.  However, the CMVM warns on the risk that may be associated with these initiatives, with the possibility that these activities may serve to attract investors to make investments through unauthorised entities or, simply, to fraud situations.

As mentioned in question 9, in compliance with the powers conferred on it by the law, the CMVM monitors and supervises the activities carried out by the financial intermediaries and related agents registered with the CMVM. Included in this scope are the activities of advertising financial products and services and attracting customers, which are limited to financial intermediaries and their related agents, and which are regulated, in particular, by Articles 7 ("Quality of information" ), 292 (“Advertising and Prospecting”) and 366 (“Supervision related to advertising and general contractual clauses”) of the Portuguese Securities Code. The CMVM has, to this extent, acted in several situations, namely, determining the cancellation or alterations to illegal advertising initiatives, as well as cooperating with counterparts when necessary.

Here, the difference between investment recommendations and investment advice or personalized advice is highlighted. Investment recommendations are regulated by European legislation (Market Abuse Regulation) in matters of content, statement of conflicts of interest and disclosure. Their object of analysis is a specific company or financial instrument and they do not have a specific recipient, they are intended for the general public.

In turn, investment advice or personalised advice, is a service aimed at a specific client and whose investment proposal is subject to suitability requirements. This means that, before making the investment proposal, the consultant has the duty to know the client's profile, to assess the investor's investment knowledge and experience, to know his/her financial situation and investment objectives, as well as the level of risk appetite. This tailored advice for a given client is an activity carried out by financial intermediaries or independent consultants that requires registration with the CMVM.