What is Credit Intermediation and What Cautions Should You Adopt in Your Business in Portugal?

Understanding Credit Intermediation: A Comprehensive Guide

In the realm of finance, credit intermediation plays a crucial role in facilitating the flow of funds between borrowers and lenders As a complex and multifaceted process, it involves a network of intermediaries who act as bridges, connecting those seeking capital with those who possess it This guide delves into the intricacies of credit intermediation, exploring its various aspects and providing valuable insights for businesses operating in Portugal.

What is Credit Intermediation?

Credit intermediation encompasses a range of activities that facilitate the lending process. It involves entities that:

• Raise funds from depositors: These intermediaries, such as banks and credit unions, accept deposits from individuals and businesses, which they then use to fund loans to borrowers.
• Raise funds from credit market borrowing: Other intermediaries, such as investment banks and mortgage companies, raise funds by issuing bonds or other debt instruments. These funds are then used to provide loans to borrowers.
• Facilitate the lending of funds or issuance of credit: This category includes entities that act as intermediaries between borrowers and lenders, such as mortgage brokers, loan originators, and credit card companies.

Credit Intermediation in Portugal: A Legal Framework

In Portugal, credit intermediation activities are subject to strict regulations. The legal framework governing this sector is outlined in Decree-Law No. 81-C/2017, which implements Directive 2014/17/EU. This law sets forth criteria for accessing and engaging in credit intermediary activities as well as consulting services.

Cautions for Businesses in Portugal

Businesses operating in Portugal that engage in credit intermediation activities must be aware of the following cautions:

• Authorization requirement: Businesses must obtain authorization from the Banco de Portugal (BdP) before engaging in credit intermediation activities.
• Compliance with regulations: Businesses must comply with all applicable regulations, including those related to consumer protection, data privacy, and anti-money laundering.
• Supervision by BdP: Businesses are subject to supervision by the BdP, which may conduct inspections and impose sanctions for non-compliance.

Recent Developments and BdP’s Stance

Recent developments by the BdP have revealed a more active stance in encompassing commercial practices within the concept of credit intermediation activity. This means that even businesses that do not directly provide credit may be required to obtain authorization and comply with regulations if their activities involve facilitating the lending process.

Risk Factors for Businesses

Companies may be more likely to be labeled as credit intermediaries if they have a paid referral arrangement with a credit institution or credit intermediary. Additionally, there may be an increased risk for companies that organize customer profiles, pre-treat, and arrange forms for intermediaries or credit institutions.

Seeking Legal Advice

Given the complexities of the legal framework surrounding credit intermediation, it is essential for businesses to seek legal advice from qualified professionals. This will ensure compliance with regulations and mitigate potential risks.

Credit intermediation plays a vital role in the financial system, facilitating the flow of funds and promoting economic growth. However, businesses operating in Portugal must be aware of the legal requirements and cautions associated with credit intermediation activities. By understanding the regulatory framework and seeking legal advice, businesses can ensure compliance and avoid potential risks.