Notice No. 2/2024

Notice No. 2/2024 .................................................................................................................................................................................................. Published in: DR, 2nd Series, Part E, No. 54, of 15-03-2024 Mod. 99999910/T – 01/14

Index Text of the Notice Annex to the Notice

Text of the Notice

European Parliament and Council Directive 2014/59/EU of 15 May 2014, transposed into the national legal order through Law No. 23-A/2015 of 26 March (BRRD), established a framework for the recovery and resolution of credit institutions and investment firms, thereby introducing amendments to the General Regime of Credit Institutions and Financial Companies, approved by Decree-Law No. 298/92 of 31 December (RGICSF), regarding these matters.

In particular, entities are required to implement recovery plans that identify measures capable of timely correcting a financial imbalance, actual or at risk of materializing.

In recent years, Articles 116-G to 116-O of the RGICSF (according to the numbering assigned by Law No. 23-A/2022 of 9 December) and Bank of Portugal Notice No. 3/2015 of 2 November constituted the national legal framework applicable to recovery plans, which aim to contribute to the financial stability of the banking system.

With this Notice, it is intended to revoke and replace Bank of Portugal Notice No. 3/2015 of 2 November, taking into account regulatory developments that have occurred in recent years and the experience acquired in the development, implementation, and evaluation of recovery plans.

The draft of this Notice was subject to public consultation in accordance with legal provisions and establishes additional elements for recovery plans, defines procedures regarding their reporting, maintenance, and revision, and specifies the procedures for determining simplified obligations in the preparation and reporting of recovery plans.

In this sense, to ensure that references to Guidelines and Recommendations issued on this matter by the European Banking Authority (EBA) remain permanently updated, it has been decided not to include them as an annex to the Notice, with their adoption now being communicated via circular letter. It should be noted that, having the Bank of Portugal communicated to the EBA its intention to comply with these Guidelines and Recommendations, the practices defined therein are taken into account in the exercise of its supervisory activity, and are, in particular,

Notice No. 2/2024 .................................................................................................................................................................................................. Mod. 99999910/T – 01/14 taken into account in the interpretation of the legal and regulatory provisions applicable to entities, for the purpose of verifying compliance therewith.

Finally, and considering the legal regime applicable to the Integrated System of Mutual Agricultural Credit, the Bank of Portugal considers it appropriate to maintain the exemption from reporting recovery plans for the mutual agricultural credit unions associated with the Central Mutual Agricultural Credit Union, with the latter, as the central body, being required to report a recovery plan with reference to the Integrated System of Mutual Agricultural Credit.

In these terms, the Bank of Portugal, in the exercise of the competence conferred upon it by Article 17 of its Organic Law, approved by Law No. 5/98 of 31 January, and by paragraph 2 of Article 116-H, paragraph 2 of Article 116-I, and paragraphs 4 and 5 of Article 116-J, all of the RGICSF, determines the following:

Article 1. Object This Notice has as its object: a) To define the procedures regarding the reporting, maintenance, and revision of the recovery plan, as well as the other complementary rules necessary for the execution of Articles 116-G, 116-H, and 116-I, all of the RGICSF; b) To specify the procedures for determining simplified obligations in the preparation and reporting of the recovery plan; c) To exercise the option to exempt from reporting the recovery plan provided for in paragraph 4 of Article 116-J of the RGICSF.

Article 2. Scope 1 - Without prejudice to the provisions of paragraph c) of the previous article, this Notice is applicable: a) To credit institutions that are not part of a group subject to consolidated supervision by a supervisory authority of a Member State of the European Union, and that are subject to supervision by the Bank of Portugal; and b) To parent companies in the European Union of a group subject to consolidated supervision by the Bank of Portugal. 2 - The provisions of this Notice also cover institutions subject to the supervision of the Bank of Portugal for which the reporting of the recovery plan is required, under the provisions of paragraph 8 of Article 116-G of the RGICSF. 3 - For the purposes of this Notice, "group" shall be understood as the group of entities that the Bank of Portugal considers integrated into its perimeter of consolidated supervision.

Notice No. 2/2024 .................................................................................................................................................................................................. Mod. 99999910/T – 01/14

Article 3. Content of the recovery plan The recovery plan must be prepared according to the structure contained in the Annex to this Notice, which forms an integral part thereof, and contain the information provided for in Article 116-H of the RGICSF, with the detail and depth appropriate to the nature, level, and complexity of the activities carried out, as well as the information considered necessary in accordance with Commission Delegated Regulation (EU) 2016/1075 of 23 March 2016.

Article 4. Simplified obligations in the preparation and reporting of the recovery plan 1 - The Bank of Portugal decides, based on the criteria contained in paragraph 3 of Article 116-J of the RGICSF and in Commission Delegated Regulation (EU) 2019/348 of 25 October 2018, which entities are eligible to benefit from simplified obligations in the preparation and reporting of the recovery plan. 2 - The Bank of Portugal notifies the entities covered of the decision to apply simplified obligations regarding certain aspects of the recovery plan, as well as of the simplification model assigned. 3 - An entity that has been notified as being eligible for the application of simplified obligations may opt to maintain and report a complete recovery plan. 4 - The Bank of Portugal periodically reviews the entities covered by the simplified obligations. 5 - The Bank of Portugal may revoke at any time a decision to apply simplified obligations regarding certain aspects of the recovery plan, provided it considers that the premises that motivated that decision no longer exist.

Article 5. Reporting of the recovery plan 1 - The recovery plan must be submitted to the Bank of Portugal annually, by 30 November. 2 - The obligation provided for in the preceding paragraph is considered fulfilled if the entity has reported a recovery plan to the Bank of Portugal within the 120 days prior to the date specified therein. 3 - Entities must, together with the plan referred to in paragraph 1, submit a set of relevant quantitative elements of the recovery plan in a harmonized format. 4 - The Bank of Portugal timely discloses, for each reference date, via electronic mail, the reporting models for the elements referred to in the preceding paragraph.

Notice No. 2/2024 .................................................................................................................................................................................................. Mod. 99999910/T – 01/14 5 - The elements referred to in paragraphs 1 and 3 must be submitted to the Bank of Portugal in electronic format through the BPNET system.

Article 6. Duty to communicate changes to the recovery plan between reporting periods 1 - When the recovery plan is revised and updated between reporting periods, in accordance with paragraphs b) and c) of paragraph 1 of Article 116-I of the RGICSF, the changes made to the recovery plan must be communicated immediately to the Bank of Portugal. 2 - For the purposes of paragraph c) of paragraph 1 of Article 116-I of the RGICSF, the following changes shall be considered to have a relevant impact, at least: a) Changes to the internal framework of indicators or to their calibration; b) Changes to the listing of recovery measures, the assessment of their impact or feasibility, or their expected implementation schedule.

Article 7. Duty to communicate breaches of limits and activation of measures 1 - Entities must communicate to the Bank of Portugal the following situations: a) Regarding the internal framework of indicators implemented, whenever the activation limits or alert limits related to regulatory requirements are breached, even if the analysis carried out by the entity concludes that none of the recovery measures should be activated; b) Regarding recovery measures, whenever a measure provided for in the recovery plan is activated, or other measures comparable to recovery measures that were not previously included in the recovery plan, even if the limits of the implemented indicators have not been breached. 2 - The communication referred to in paragraph a) of the preceding number must include information on the indicators and limits that have been breached, the detail and conclusions of the analysis carried out by the entity, and, if applicable, information on the recovery measures or other measures activated. 3 - The communication referred to in paragraph b) of paragraph 1 must include information on the recovery measures or other measures activated, the reasons that justified these measures, and the impact of these measures on the financial and prudential position of the entity. 4 - The communication to the Bank of Portugal must occur: a) Within a maximum period of two business days, in the case of a breach of activation limits;

Notice No. 2/2024 .................................................................................................................................................................................................. Mod. 99999910/T – 01/14 b) Within a maximum period of one month, in the case of the activation of measures; c) As soon as possible, in the case of a breach of alert limits. 5 - The communication referred to in the preceding number must include, at least, information on the breach of limits or on the measures activated, with the detail and conclusions of the analysis carried out by the entity being communicated subsequently as soon as possible and within a maximum period of two months. 6 - The communication to the Bank of Portugal must follow the procedures published in the "Supervision" Microprudential "Duty to communicate" section of the Bank of Portugal's institutional website.

Article 8. Exemption from reporting the recovery plan The mutual agricultural credit unions associated with the Central Mutual Agricultural Credit Union are exempt from reporting individual recovery plans, with the latter being required to report the recovery plan with reference to the Integrated System of Mutual Agricultural Credit.

Article 9. Enabling norm The Bank of Portugal may regulate, through Instruction, what is considered necessary for the development of the provisions established in this Notice.

Article 10. Repealing norm Notice No. 3/2015 of 2 November, published in the Official Bulletin of the Bank of Portugal No. 11/2015 of 16 November 2015, is revoked.

Article 11. Entry into force This Notice enters into force on the day following its publication. 27 February 2024. - The Governor, Mário Centeno.

Annex to Notice No. 2/2024 .................................................................................................................................................................................................. Mod. 99999910/T – 01/14

Annex to the Notice Structure of the recovery plan A. Summary of the recovery plan B. Internal Governance 1 - Preparation and approval of the recovery plan 2 - Integration and consistency with risk management and internal control systems 3 - Policies and procedures for the implementation of recovery measures 4 - Indicators of the recovery plan C. Strategic Analysis 1 - General description of the Group/Entity, including: i) The entities covered ii) The identification of critical functions and main business areas iii) A description of internal interconnections iv) A description of external interconnections 2 - Recovery measures, including: i) The listing and description of each recovery measure ii) The assessment of the impact of each of the recovery measures iii) The assessment of the feasibility of each of the recovery measures iv) The expected implementation schedule for each recovery measure 3 - Assessment of the expected effectiveness of recovery measures and indicators, including: i) The listing and description of each scenario and the selected measures ii) The assessment of the impact of each recovery measure in the scenarios iii) The assessment of the feasibility of each recovery measure in the scenarios D. Communication Plan 1 - Internal communication 2 - External communication 3 - Analysis of the relationship between communication measures and recovery measures E. Preparatory Measures 1 - Impediments identified to the implementation of the recovery plan 2 - Preparatory measures implemented or to be implemented