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Brexit: Contingency Measures in Financial Services and Social Security

SÉRVULO PUBLICATIONS 03 Oct 2019

On September 30, 2019, Decree-Law No. 147/2019 of 30 September was published. It establishes a set of contingency measures to be applied after a Brexit without agreement, which may result in the termination of services and agreements to investors in Portugal or in the application for authorization to continue the exercise of their activity.

The main objective of this diploma is to speed up the transition from Brexit to credit institutions, investment firms and management companies based in the United Kingdom and providing services in Portugal, focusing on two distinct areas: (i) Financial Services; and (ii) Social Security

     I. Financial Services

Regarding Financial Services, Decree-Law No. 147/2019 deals with three business segments: (i) investment services and activities; (ii) banking services and activities; and (iii) insurance services and activities.

Considering investment services and activities, the new Decree-Law establishes a similar regime in regard to the provision of investment services and activities and the provision of services related to collective investment undertakings

Authorized entities in the United Kingdom to provide investment services and activities, which intend to continue to provide them to Portuguese investors - without having an establishment - must, on the one hand, certify prior to Brexit, that the CMVM receives, from the UK authority, a notification for the provision of such services and activities in Portugal

On the other hand, these entities are required, within three months of Brexit, to submit to the CMVM the elements set forth in Annex I (services and investment activities) and / or Annex II (services related to collective investment undertakings) to the Decree-Law, demonstrating whether (i) they will terminate existing contracts or (ii) if they will request authorization to continue their activity in Portugal. In such cases the application must be submitted within six months of the date of departure from the United Kingdom

As far as investors are concerned, this scheme enhances the protection of non-professional clients since investment firms and managing entities may only carry out operations concerning the termination of agreements which have been concluded until this date – and until the application for authorization has been submitted.

In such cases the Securities Code and / or the Legal Framework of Collective Investment Undertakings shall apply. 

Finally, if these entities - which are not established and that carry out their activities in Portugal - have their authorization revoked, they must immediately inform the CMVM and the activity will cease immediately. 

In turn, also in the exercise of banking activities there are new rules and limitations, namely in regard with deposit agreements, credit operations, payment services and issuance of electronic money. 

Henceforth, rights and obligations arising from the agreements entered into prior to Brexit will remain unchanged, provided that these entities notify Banco de Portugal within three months of the entry into force of Decree-Law No. 147. / 2019

Nonetheless, this regime differs as to the applicable law: during the term of this Decree-Law, the normal rules applicable to the exercise and provision of services will apply; when the Decree-Law expires third country entities rules shall be applicable. 

Finally, under the insurance activity, all contracts entered into - and covering risks situated in Portuguese territory or in which Portugal is the Member State of the commitment - remain in force prior to Brexit, and their extension is not possible.

     II. Social Security:

In what regards the regime established for social security, Law No. 27-A / 2019 of 28 March establishes that United Kingdom Nationals and family members are also granted social security rights when periods of insurance in the United Kingdom are completed, under the mandatory social security regime until Brexit, a period which must be certified by the UK social security authorities.

The new Decree-Law approves new social security measures by ensuring the recognition and maintenance of insurance rights under a compulsory social security scheme in the United Kingdom until the date of Brexit, in compliance with Regulation (EU) 2019/500 of the European Parliament and of the Council of 25 March 2019 laying down contingency measures in the field of social security coordination following the departure of the United Kingdom from the European Union and obliging Member States to apply the measures and principles established for the coordination of social security systems (Regulation (EC) 883/2004 and Regulation (EC) 987/2009).

Finally, it should be noted that the application of this diploma presupposes the equivalent treatment, in these matters, to Portuguese citizens resident in the United Kingdom by the competent authorities.

Guilherme Ribeiro Martins

grm@servulo.com

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Guilherme Ribeiro Martins