New sanctions aimed at encouraging transparency in banking – CCA Ontier

The recent episodes arising from the collapse of several national banks, in particular the latest scandal involving the Espírito Santo´s Group, led to the modification of sanctions in the Portuguese Securities Code.

The draft law 53/XIII, introduced by the Portuguese Government and approved unanimously on 31 March, is a modification of the securities’ sanctioning regime in relation to information transparency among financial institutions.

The main purpose of this legislative improvement is to avoid the fraudulent practices such as those related to the (false) information disclosed to general investors in securities acquisitions.

On the preventive side, this reform will strengthen the compliance standards of the securities sector, namely the implementation of reporting channels as key instruments in the detection of infringements by the regulatory authorities.

In addition, a new criminal offence will be introduced in the Securities Code constraining the disclosure of false information by financial institutions, or their intermediaries, with the aim of attracting investment.

The new criminal offence will essentially focus on information set out in prospectuses and other related documents disclosed by financial institutions to securities investors. However, the reform has not yet come into force, as its publication is expected in mid-2017.

The new criminal offence relates to the disclosure of legal, financial or economic information to general investors when such information is false or inaccurate. For such purpose, the upcoming article 379-E of the Securities Code defines as “false information” the disclosure, or the omission, of an ‘untrue reality’ in order to complete a financial transaction. This conduct will be penalised with two to eight years’ imprisonment.

The main aim of this reform is to restore investors’ confidence on the banking industry, as the major priority set by the regulatory authorities is to ensure information transparency in the sector. Moreover, and in accordance with what seems to be this reform’s main concerns, the avoidance of fraudulent conduct is crucially dependent on a preventive culture within financial institutions.

In fact, this reform includes elements of a ‘compliance culture’, such as the implementation of reporting channels in order to prevent legal violations. Notwithstanding the fact that the measures are being applied to financial entities in a regulated sector, it is a clear message for any company exposed to risk.

Unlike companies in Portugal, Spanish companies are increasingly aware of the importance of compliance policies. However, it must also be said that the Spanish penal code has already adopted measures that bring legal value to a ‘compliance culture’ when effectively implemented in the sphere of a company. From this perspective, and in line with the Spanish reality over the past two years, it is very likely that the provision of compliance legal services among Portuguese law firms will grow in the coming years.

The criminalisation of false information disclosure has been needed to appease society at a time where there is a general distrust of the banking industry, with several bank’s directors still waiting trial for the collapse of their banks.

The structure adopted by the present reform is quite challenging in terms of a change of mentality regarding compliance matters, since it not only sets out new penalties and a new crime but also mechanisms for prevention.

Notwithstanding that the reform is not primarily focused on compliance issues, it has become more important due to its gradual introduction into our legal framework.  In fact, a ‘compliance culture’ is as essential in the regulated markets as within any company. This means it seems a general reform should be introduced that makes ‘compliance culture’ a structural part of every regulatory regime, and especially in relation to corporate liability in our Penal Code.

João de Mascarenhas is a lawyer at CCA Ontier. He can be contacted at jmm@cca-ontier.com