SECTION 1: Market outlook
1.1 Please clarify which products or markets your jurisdiction hosts that are affected by Mifid II.
Mifid II implementation in Portugal will apply generally to the provision of investment services to retail and professional clients. With Mifid II, the concept of a financial instrument is broadened to expressly include emission allowances. In turn, certain exemptions and safe harbours – such as the one relating to negotiation on own account – are narrowed. Particular to the implementation in Portugal, in accordance with the current draft of the bill implementing Mifid, is the extension of certain Mifid II requirements to the marketing of retail banking products, and specifically of structured deposits, which are therefore subject to enhanced rules of conduct and procedural requirements.
SECTION 2 (a) – EU Member States: Implementation
2.1 Outline the possible key differences in (a) gold-plating; and (b) exercise of national discretion, where provided for in Mifid II in your jurisdiction.
The current draft of the bill implementing Mifid II in Portugal does not generally contain gold-plating. However, as a result of the bank resolutions that have taken place in Portugal, and the political focus and media impact that they have had, there are currently discussions in Parliament that might result in amendments to the bill that include gold-plating. These are expected to impose additional constraints in relation to self-placement of financial instruments and additional transparency requirements.
2.2 What is the biggest concern in respect of these variations and possible types of divergences?
At the moment, the extent of the gold-plating is not evident. These additional requirements might, in the abstract, place additional constraints on Portuguese entities. However, these might not be very detrimental in comparison, considering that other jurisdictions are also imposing additional requirements.
2.3 What are the most important extraterritorial issues regarding Mifid II in your jurisdiction?
The new requirements in respect of research are expected to have a significant impact in terms of cross-border activities.
SECTION 3: Research
3.1 Please summarise the challenges Mifid II will pose in your jurisdiction with regards to research.
Local players that have research activities have been preparing for the Mifid II challenges. However, other financial intermediaries that do not produce research but are recipients of research are probably not aware of the new requirements. The firms will have to set up strict internal procedures to ensure that their employees return or destroy research that has not been paid for.
3.2 Is pricing research compatible with market practices and existing legal frameworks?
The market is not completely ready for these requirements. Firms will have to consider whether it makes sense to continue producing research which will entail putting into place client facing operations for research activities.
3.3 Is there clarity on how to resolve challenges in unbundling research and complying with Mifid II in this respect?
The biggest challenge in unbundling research is actually identifying research and making a clear distinction from marketing communications and other types of communications. We feel that it will take a significant amount of time until there is clarity on this front.
SECTION 4: Trading/market structure
4.1 Which areas of trading / type of instruments will be most impacted by Mifid II in your jurisdiction and how might they be impacted?
The application of trade transparency rules to non-equity instruments (notably bonds) will have a significant impact across European markets in general and on the Portuguese market in particular. Although trade transparency rules for bonds have been diluted in the final versions of the European Commission's delegated regulations. This will be particularly welcomed by the financial intermediaries most involved in bond trading and some buy-side firms. Nevertheless, Mifid II and Mifir have underlined the importance of (and demand for) greater trade transparency in a trade environment that is increasingly based on electronic trading platforms. Market participants will have to adapt to a new trading environment, as was the case with the US when bond trade transparency was introduced with the Trade Reporting and Compliance Engine (TRACE).
4.2 What will be the key challenges with regards to transaction reporting and pre-trade transparency?
The harmonisation of transaction reporting and to a certain extent of pre-trade transparency requirements, is crucial to ensure efficient supervision and better market data, which will eventually lead to more efficient securities markets in Europe. However, the reporting and pre-trade transparency requirements are greatly expanded under Mifid II/Mifir and this will require significant adjustments and investments by market participants, as especially at this initial stage. The content of transaction reporting, in particular, will require a vast amount of new information and it will be a challenge not only for market participants to implement procedures and systems to comply with those enhanced requirements, but also for supervisors to ensure high-quality market data consolidation at a European level.
4.3 What are the main considerations that trading venues and exchanges will have to make?
Trading venues and exchanges are particularly well-placed to take advantage of the new Mifid II/Mifir requirements, as they can harness infrastructure and market data to provide new services to market participants at lower costs due to economies of scale. At the same time, Mifid II will bring (even) greater competition to the organised trading environment, with new alternative trading structures (particularly systematic internalisers) for equity and non-equity instruments that could put pressure on established players.
SECTION 5: Investor protection
5.1 Explain the impact of heightened investor protection obligations in your jurisdiction.
Investor protection is one of the main drivers and objectives of Mifid II and it will introduce important changes that can increase the protection of investors in securities markets. This will be of particular importance in the case of Portugal in light of the aftershocks of the financial and economic crisis for the Portuguese financial market and investors. In particular, product governance and inducement requirements will require an effort to that by banks and investment firms. This will have potential impact on commercial strategy. In addition, the new information requirements under the Packaged Retail and Insurance-based Investment Products (PRIIPs) Regulation will also be a challenge for firms to comply with. Although the Portuguese market is already familiar with a Key Information Document (KID) for complex financial products (which has been required in Portugal since 2008), the PRIIPs KID will have a different structure and content that will require internal organisational efforts to ensure timely compliance.
5.2 Which area of focus within investor protection is of most concern/importance to your jurisdiction?
Product governance requirements, along with new product intervention powers of supervisors, will be a crucial step to reduce mis-selling of financial products to retail investors, as well as a more stringent approach to execution-only. The new rules on inducements can also contribute to new quality-enhancing services which can benefit investors. Furthermore, new information requirements when firms provide investment advice to clients, including providing a written suitability report, will bring greater protection in advisory services. However, supervision will be crucial so that these changes and heightened standards are efficiently adopted and complied with by financial institutions.
SECTION 6: Outlook 2017
6.1 What are the overall risks or opportunities that Mifid II might bring to your market? Will Mifid II impact the competitiveness of your market?
Adapting to the new regulatory framework will require a significant effort on the part of Portuguese investment firms, which are fewer in number and smaller than in other European jurisdictions. This will require a cost-effective approach to the implementation process, so as to ensure that investment activities remain profitable. In any case, after a flood of scandals involving large and small banks and investment firms, Mifid II should be seen as yet another opportunity to reinforce trust in the market and financial institutions.
6.2 What are the next steps – what should market participants be doing now to best prepare themselves?
While the implementing law is still in draft form, and expected to be released only late in the year, a substantial part of the framework that will apply in Portugal from January 2018 onwards is already known and stabilised. Therefore, market participants are already in a position to conduct the necessary impact assessments, decide on the changes required to commercial strategies, and set-up and amend internal policies and contractual and information documentation so as to reflect Mifid II's brave new world.
|About the author|
André Figueiredo is a partner and head of the capital markets team. He has over 12 years' experience and a significant and diverse track record advising on large-scale, complex capital markets and corporate finance transactions, both in the equity segment (IPOs, rights issues, block sales) and in the debt segment (including sovereign debt, structured debt and securitisation). Figueiredo focuses extensively on financial regulatory matters, assisting financial institutions, asset managers and listed companies on a wide range of matters such as Mifid II, Emir and MAR. Figueiredo teaches securities and financial law and is a regular speaker at industry and academic conferences. He was awarded the prestigious Iberian Lawyer "40 under 40 Award" in 2015.
|About the author|
Bruno Ferreira is a partner in PLMJ's banking and finance practice. He has over 14 years' experience in advising clients from the finance, banking and capital market sectors. He has worked on large and complex deals assisting companies and credit institutions, in finance transactions, capital markets transactions and in providing assistance on financial regulatory matters. He also has extensive experience in working on distressed assets transactions. Before joining PLMJ, he spent 14 years at Garrigues Portugal. In addition to his work as a lawyer, Ferreira is the author of several articles and has published and contributed to several books on banking, corporate and securities law. Ferreira also has an LLM in banking law from the Faculty of Law of the University of Lisbon.
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