PORTUGAL Trends and Developments Contributed by: Rodrigo Formigal, João Diogo Barbosa and António Kreiseler de Albuquerque, Abreu Advogados
regulated activity and therefore restricted to duly authorised entities. In an effort to prevent and combat unauthorised financial activities and to protect consumers, a recent legislative act set forth a general duty for market operators to refrain from marketing and taking part in financial products provided by unauthorised entities. The act also establishes reporting duties in relation to unauthorised banking practices, while expand - ing the supervisory powers of Portuguese finan - cial regulators. ESG and Sustainable Finance ESG concerns are also expected to remain a focal point in the Portuguese financial sector for 2025. Recent data from the Bank of Portugal showed that the stock of ESG-linked bonds was above EUR12 billion as of August 2024, a rel - evant figure for a relatively small market that saw its first issuance in 2019. Clients’ and investors’ awareness of green loans, ESG-linked loans or sustainability-linked loans has increased, and banks and other lenders are facing increasing pressure to make their loan books “greener”. There has also been a progressive increase in the incorporation of ESG KPIs in loan transac - tions during the past couple of years, associated with better pricing for borrowers and other more favourable debt conditions. For 2025, sustainability will remain a cornerstone of Portugal’s economic strategy, closely aligned with European Union laws and directives aimed at fostering a green transition across member states. Key regulations include the EU Green Bond Regulation (which shall become effective from 21 December 2024), aiming to create a robust framework for green bonds, ensuring that proceeds are used for environmentally sustain - able projects. The regulation enhanced trans - parency and accountability, enabling investors to confidently finance initiatives that align with
the EU’s climate goals. Additionally, the Sus - tainable Finance Disclosure Regulation (SFDR) has required financial institutions to disclose the sustainability risks associated with their investments, promoting greater transparency in the financial sector and generating compliance requirements for banks. As a result, banks in Portugal are increasingly integrating environmental, social, and govern - ance (ESG) criteria into their organisation, lending and investment practices. The SFDR mandates that firms categorise their financial products based on their sustainability characteristics, encouraging the development of products that support the EU’s objectives for a greener econ - omy. Furthermore, the EU Taxonomy Regulation provides a classification system for sustainable economic activities, guiding financial institutions in identifying which investments are aligned with environmental objectives. This regulatory land - scape not only drives banks to enhance their sustainable finance offerings but also compels them to assess the impact of their investment portfolios on climate change and biodiversity loss. With rising regulatory scrutiny and grow - ing consumer demand for sustainable practices, the banking sector in Portugal is well-positioned to lead in green financing initiatives that not only comply with EU laws but also contribute to a more sustainable and resilient economy. Artificial Intelligence in Banking Services Recent developments in the field of AI, with the broader and increasing use of generative AI sys - tems and Large Language Models (LLMs), have generated a great interest in the industry and have already been reflected – still in a limited capacity at this stage – in banking services. The integration of generative AI and LLMs into the banking sector is expected by some to sig -
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