CMVM recommends ‘added prudence’ in decisions on Ukrainian investments

The Portuguese Securities and Exchange Commission (CMVM) on Friday recommended: “increased prudence and vigilance” of investors facing the potential impacts of the war in Ukraine, although it considered that the exposure of the Portuguese market to the conflict is “reduced”.

“The exposure of the market and national investors to entities and assets most affected by the conflict is reduced and the majority of relevant international markets for Portugal, although recording higher levels of volatility, continue to function normally,” said a statement published on the regulator’s website.

Even so, and “considering the complexity of the potential channels of contagion of the current circumstances to the economy and national and international markets”, the CMVM recommended “increased prudence and vigilance to supervised entities and investors”.

Among the impacts on the levels of volatility in the market, the market regulator pointed out “the change in the prices of energy and some raw materials, the persistence of difficulties in the logistic chains of supply of goods, the anticipated revision of the estimates of economic growth in the European Union and other geographies, the possible change in market interest rates by central banks and the greater geopolitical instability”.

In this context, it recommended that investors take into account “the present situation as well as the expectation of its impact over time” and that they consider “the increase in cyber risk”, avoiding “impulsive decisions or rash decisions unsuited to their long-term investment objectives”.

Regarding listed issuers, it stated that they should make public “all potential inside information arising from the effects of the current crisis”, as well as “ensure that their financial reporting expresses, to the extent possible, current and prospective direct and indirect impacts of the conflict, including those arising from sanctions”.

In addition to this relevant information to investors, entities subject to CMVM supervision, especially those subject to its prudential supervision, must inform the regulator of “impacts that may materially impair their functioning”.

Considering the increase in cybersecurity incidents, investors and entities were also advised to strengthen the “mechanisms of vigilance and response to potential events that could affect their activity or the integrity of their information”.

Supervised entities should also “know and ensure, in the conduct of their business and interactions with the outside world, the implementation of restrictive measures approved by the European Commission (EC)”, which limits international transactions and the provision of financial services.

They must also “identify the risks posed by certain types of transactions or actions”.

Stressing that, “in coordination with the ESMA [European Securities Market Authority] and the other European national authorities”, it continues to “permanently monitor the impacts of the Russian invasion of Ukraine”, the CMVM said it was, in particular, monitoring the market and its structures, asset management, the marketing of financial instruments, issuers and auditors.

Regarding the market and market structures, it is “permanently analysing the global evolution of international markets and their volatility and liquidity indicators” and also “the performance of investors with strategies of short positions on shares, […] without any abnormal situations having been verified in general”.

Concerning asset management, the CMVM assessed the degree of direct exposure of investment funds and individual portfolios under management to the countries involved in the conflict, as well as indirect exposure through holdings in foreign funds, namely in emerging markets, having found that “exposure is, in general, not very relevant”.

Regarding the marketing of financial instruments, particularly foreign funds distributed in Portugal and PRIIPs (packaged financial products), the regulator said it had concluded that “the level of subscription by retail investors of products with direct or indirect exposure to the markets involved in the conflict, namely foreign funds of emerging markets, […] was generally negligible”.

In its monitoring activity, the CMVM also requested “clarifications from several issuers which, due to their economic activity or the characteristics of their business, could have a greater exposure to the jurisdictions involved in the conflict or to the economic situation resulting from this situation, namely to the evolution of energy markets”.

It stressed “the obligation to disclose information to the market in all cases that have caused or may cause relevant effects on the economic or financial activity”.

The CMVM has also contacted several auditors of public interest entities to find out how “they are taking into consideration the possible impacts arising from international events in their account certification work”.

On February 24, Russia launched a military offensive in Ukraine that has caused at least 780 deaths, injured 1,252, including dozens of children, and caused the flight of about 5.2 million people, including more than 3.1 million to neighbouring countries, according to the latest UN data.

The international community condemned the Russian invasion in general, which responded by sending arms to Ukraine and strengthening economic and political sanctions against Moscow.