Last January, the Portuguese central bank, the Bank of Portugal (BoP), announced a reorganisation of its supervision activities. Its board of directors decided to split the existing Banking Supervision department into three separate departments: the Prudential Supervision department, the Conduct Supervision department and the Legal Enforcement department.
The Prudential Supervision department will be responsible for prudential regulation and supervision, aimed at ensuring the stability, efficiency and soundness of the financial system and the solvency, liquidity and good governance of the supervised institutions. The Conduct Supervision department will supervise the practices of credit institutions in relation to retail banking products and services, including with regard to sales practices and disclosure of information to customers.
It will also be charged with sharpening the rules of conduct and transparency to be observed by credit institutions and for implementing programmes to increase the disclosure of information to bank customers and promote financial literacy. The Legal Enforcement department is responsible for imposing penalties for breach of financial laws, ensuring that financial institutions comply with money laundering and terrorist financing obligations and also deciding on enforcement measures that do not have a sanctioning nature (for example the revocation of banking licences).
In Portugal, financial supervision is shared between three separate supervisory bodies: the BoP, the Securities Market Authority and the Insurance Supervision Authority. However, last year, the Portuguese government announced its intention to evolve to a twin peaks model whereby the BoP would be in charge of prudential supervision and a newly-created entity would be responsible for conduct supervision.
This recent reorganisation falls short of the government's previously announced plan, insofar as all supervisory responsibilities remain in the hands of the BoP. However, the creation of specialised departments within the BoP may be a bridging structure to the future spin-off of certain activities into one or more separate entities.