CPEffective Insolvency and Creditor Rights Systems
A 2003 report generated by the Expert Group for the European Commission as part of its "Best Project on Restructuring, Bankruptcy and a Fresh Start," disclosed that, as of 2002, Portugal had fully adopted 12 of the World Bank's Principles and Guidelines for Effective Insolvency and Creditor Rights Systems. It had almost fully adopted 26 of these principles and guidelines, and had partially adopted 3 of them. PricewaterhouseCoopers (PwC) reported in 2005 that Portugal passed a new Code of Insolvency and Recovery of Companies in the previous year. This law focused specifically on creditor rights and the liquidation process. An earlier law, originally passed in 1998, directly addresses the procedures to be followed in order for a troubled firm to enter into an agreement with most or all of its creditors in order to achieve an out-of-court resolution of its indebtedness. This law was updated in 2004 to harmonize its provisions with the newly enacted Code of Insolvency and Recovery of Companies. The PwC report notes that there were no plans, at the time of the writing of the report, for further reforms of the insolvency regime.
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NCInternational Financial Reporting Standards
The European Committee's Central Balance Sheet Data Offices' (CBSO) 2007 report observes that the European Commission (EC) Regulation No. 1606 of 2002 was implemented in Portugal by Law-Decree No. 35 of 2005 that came into force in February 2005. In line with the above mentioned EC Regulation, Portuguese listed companies, beginning 2005 are required to apply International Financial Reporting Standards (IFRSs) as endorsed by the EC in preparation of consolidated accounts. Further, a 2008 EC report on the implementation of Regulation No. 1606 of 2002 points out that in addition to the required application of national generally accepted accounting principles (GAAP), Portuguese listed companies are also permitted the use of IFRSs in their annual accounts except for listed banks, insurance companies, and other financial institutions, which are required to apply IFRSs in preparation of annual accounts. As for unlisted entities, IFRSs are permitted in the preparation of consolidated accounts and annual accounts. However, unlisted banks and financial institutions are required to apply IFRSs in their consolidated accounts. Portuguese companies not applying IFRSs follow national GAAP which primarily consists of the Portuguese Accounting Plan (POC). A 2005 comparison by the CBSO highlights many differences between the POC and the international standards.
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IIPrinciples of Corporate Governance
A 2007 report on European corporate governance practices by Heidrick and Struggles notes that since 2003 Portugal's record on corporate governance has improved from the last place in the 10 countries surveyed to the sixth position in 2007. The report attributed this improvement to two key developments: firstly, the introduction of the Commercial Companies Act in 2006 and secondly, the introduction of "Recommendation on Corporate Governance" by the securities market regulator - the Securities Market Commission (CMVM). These recommendations were implemented on a comply-or-explain basis in 2001 and have been frequently amended and updated, and are expected to be so in 2008 again. A 2006 IMF reports points out that the CMVM has been taking an active role in investor education and set up an Investor Assistance and Mediation Office which receives complaints of investors and also guides them in matters related to securities market. Despite these initiatives, there is lack of information specifically addressing Portugal's compliance with the Organization for Economic Co-operation and Development (OECD)'s Principles of Corporate Governance.
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IDInternational Standards on Auditing
According to a 2008 Institute of Public Accountants (OROC) self-assessment, Portuguese Audit Standards (PASs) are already in general compliance with the International Standards on Auditing (ISAs) promulgated by the International Auditing and Assurance Standards Board (IAASB), however, some revisions are necessary to fully comply with the corresponding international standards. As of 2008, all audits are conducted in accordance with the national auditing standards and guidelines developed by the OROC and in case of loopholes in the national auditing framework, IAASB pronouncements are to be followed, the self-assessment explains. In addition, the OROC believes that the approval of the European Union 8th Directive will bring PASs further in line with ISAs. With the enactment of Directive 2006/43/EC of the European Parliament and Council (effective May 2006), all statutory audits of annual and consolidated accounts must be carried out on the basis of ISAs as adopted by the European Commission. EU member states shall adopt and publish the provisions necessary to comply with this Directive before June 29, 2008. Member states may impose additional requirements relating to the statuary audits of annual and consolidated accounts for periods expiring on June 29, 2010.
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CPAnti-Money Laundering/Combating Terrorist Financing Standard
The Financial Action Task Force (FATF) conducted a mutual evaluation of Portugal's Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) regime against the FATF's 40+9 recommendations and special recommendations. The FATF published its findings in a 2006 report, in which it concludes that Portugal is compliant with 13 FATF recommendations and special recommendations; largely compliant with 23; partially compliant with 10; non compliant with 2; and one recommendation is not applicable to Portugal. The report notes that the overall AML/CFT framework in Portugal is generally comprehensive, and achieves a high degree of compliance with most of the FATF's recommendations. Nevertheless, there are some areas where Portugal's AML/CFT regime could be enhanced. For example, the FATF report points out that Portuguese authorities do not produce comprehensive statistics on money laundering and terrorist financing investigations, prosecutions and convictions. Furthermore, while all anti-money laundering obligations extended to financial institutions in Portugal also apply to Designated non-Financial Business and Professions (DNFBPs) under Article 22-31 of Law No. 11 of 2004, the FATF report observes that customer due diligence obligations for DNFBPs are less developed than for financial institutions. Money laundering is criminalized pursuant to Law No. 11, which adds Article 368-A to the Criminal Code. Terrorist financing is criminalized pursuant to the Act Defining Money Laundering and Criminalizing the Transfer of Funds Related to the Commission of Terrorist Acts through Law No. 52 of 2003.
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CPCore Principles for Systemically Important Payment Systems
The Bank of Portugal (BdP) in two of its recent (2007 and 2008) reports on payment systems mentioned that the Portuguese Large-Value Real-Time Gross Settlement System (SPGT) settled all transactions with a value greater than 100,000 euro so as to minimize systemic risk. The retail payment system in Portugal, the Interbank Clearing System, according to a 2005 European Central Bank assessment is a prominently important retail payment system rather than a systemically important payment system. In its 2004 assessment of TARGET components, the ECB concluded that SPGT fully observed seven of the ten Core Principles for Systemically Important Payment Systems (CPSIPS) as defined by the Committee on Payment and Settlement Systems (CPSS). It broadly observed Principles VII & VIII and Principle V was not applicable to the system. However, on February 18, 2008, SPGT was replaced by the European Union's Trans-European Automated Real-Time Gross Settlement Express Transfer (TARGET) 2 system. TARGET2 is the successor to TARGET, to which SPGT was already linked. While with TARGET, the large value interbank payment systems of member countries were interlinked, TARGET2 provides harmonized payment services under a single shared platform across its member countries. However, there is little information assessing TARGET2's compliance with the CPSIPS except for a statement in a 2008 ECB report on TARGET2, in which it indicates that the system is expected to fully observe all the CPSIPS. Despite the lack of information on TARGET2, it is generally believed that the system is an improvement over its predecessor and its component systems. Therefore, the level of compliance assigned to SPGT by the 2004 ECB assessment is maintained until TARGET2 is fully implemented in all its member countries and assessed against the CPSIPS, which according to the 2008 ECB report, is expected in late 2008.
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