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Newsletter June 2022

Legal Updates

The portuguese insurance and pension funds supervisory authority pledges to change the governance system of insurance companies

The Insurance and Pension Funds Authority, as its counterpart in the banking sector had already done, issued a regulatory standard that pledges to amend the governance structures of insurance companies with head office in Portugal as well as their branches in Portugal, namely with regard to the Portuguese and European regulatory framework of risk management systems, internal control system and internal audit and actuarial functions (Regulatory Standard 4/2022-R of 26 April).

Following the most recent guidelines of EIOPA (European Insurance and Occupational Pensions Authority), with regard to the management body’s responsibilities as well as the division and responsibilities of the internal control functions, this new regulatory standard reinforces the role of the insurers’ management body, positioning it as the maximum guarantor of the existence of organisational and operational structures that are appropriate and transparent with regard to the objectives the insurers must pursue.

For this purpose, the norm establishes various obligations of this body, in particular the obligation to prepare long-term strategic plans, approve policies that are part of the governance system, monitor compliance with rules on conflicts of interest and transactions with Related Parties, and finally, giving it a prominent role in the promotion of an integrated risk culture, as well as in the promotion of professional, responsible and prudent conduct by all the insurer’s employees.

The norm also provides for very relevant aspects in the insurance activity, namely the rules of subcontracting, remuneration policy for people who effectively run the company or perform key functions, internal reporting of irregularities, as well as policies to be adopted concerning conflicts of interest and transactions with Related Parties.

This norm will come into force this year and is therefore likely to involve a transitional period, in which the insurers will have to make significant changes to their governance systems.

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Support for the impacts of increased energy and raw material prices

Due to the economic, political and humanitarian crisis arising from the invasion of Ukraine by the Russian Federation, the Portuguese Government has taken exceptional measures to support certain economic segments most affected by this situation. Thus, in order to mitigate the effects caused by the increase in energy prices or breaks in the supply chains of raw materials essential to the pursuit of the respective activity, Decree-Law 30-D/2022 of 18 April introduced the “extraordinary regime of deferral of payment of contributions due by employers and self-employed workers“, which came into force on 19 April 2022.

Furthermore, this diploma also determined the extension of the complementary regime of tax obligation deferral to be complied with in the first semester of 2022, provided for in Decree-Law no. 125/2021, of 30 December.

Accordingly, Ministerial Order no. 141/2022 – in a joint effort between the members of the government responsible for finance, economy and social security – has subjectively specified the application of this benefit, defining the categories of employing companies and self-employed worker who can access the payment of contributions, regulating the Portuguese Classifications of Economic Activities (CAE) and the codes mentioned in the table of activities for the main IRS purposes of employers and self-employed worker, from the private and social sectors, covered by the extraordinary regime of deferral of payment of social security contributions, as well as taxpayers, individuals or legal entities covered by the extension of the complementary regime of deferral of tax obligations to be complied with in the first half of 2022.

At the same time, with regard to the contributions for March, it provides that employers and self-employed workers who have paid all the contributions for March may benefit from the deferment of all the contributions for April and May under the terms previously defined.

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Business Updates

Relaunch of the non-performing loans market

Portugal is one of the EU countries with the highest ratio of non-performing loans.

After a slowdown in the NPL (Non-Performing Loans) sales market caused by the pandemic, there are promising signs of market recovery.

Seen as a way to reduce the stock of non-performing loans, increasingly more Portuguese banks are showing interest in selling portfolios of this type of credit, with several sales processes underway or already announced, including by banks such as Bankinter, Santander, EuroBic and Millennium BCP.

The launch of new sales processes is also expected in the coming months by Caixa Geral de Depósitos and Montepio Geral, as stated by Francisco Virgolino, Head Partner of NPL & REO Portugal at Prime Yeld in a study developed by the consulting company.

The dynamism of the Portuguese market has raised the interest of a growing number of investors in NPLs, which means that new market operators are expected to enter the market. Likewise, there are forecasts of a diversification of the supply of non-performing loan portfolios, which will promote the diversification of the profiles of active investors.

In addition, financial instability and the trend towards higher inflation could have an impact on the NPL ratio, which could rise over the next few years, thus generating new investment opportunities in the Portuguese market.

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250 million fund for investment in deeptech

K Funds is a Spanish company specialised in the distribution of asset management funds and one of the largest venture capital funds in the Iberian Peninsula, created in 2016. It started as an early stage fund focused on pre-seed and seed funding and was one of the first to fund companies such as Factorial, Exoticca, Abacum and La Gran Familia Mediterránea.

At the end of last month, it announced the Leadwind fund, for a total amount of 250 million euros, with the intention of entering series A or later rounds, with the support of several investors, including Telefonica, BBVA, Go-Hub, ALSA, SATEC and AXIS-ICO and also some family offices. The first tranche of the fund, in the amount of 140 million euros, will be available in the short term.

This amount will be invested in early stage deeptech start-ups (companies specialised in complex technologies and/or high impact problem solving) and technological scale-ups dedicated to the Internet of Things, networks, cloud computing services, artificial intelligence or blockchain based in Portugal, Spain and Latin America. The fund has an investment capacity of at least 5 million per company.

Isabel Salgueiro will be the early stage investor of the K Fund and will be responsible for the Portuguese market, where about 15% of that amount may be allocated. According to her, the Iberian countries have an enormous potential for growth and technological development even at world level, with Portugal representing a “natural bridge to Brazil”.

In the words of the fund’s partner, the Portuguese, Spanish and Brazilian entrepreneurial environment “count on the presence of prestigious universities, access to sophisticated and experienced talent and growing networks of entrepreneurs who have been successful in the past and are helping to create other, trustworthy ones for the newcomers“.

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