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FSMA provides guidance on the application of rules on unfair contract terms to investment instruments offered or distributed to consumers in Belgium

On 6 February 2017, the Financial Services and Markets Authority (the FSMA) published a communication on the application of the Belgian rules on unfair contract terms to investment instruments offered or distributed in Belgium (the Communication). It contains: (i) recommendations on provisions to be included in offering documents; and (ii) the FSMA’s interpretation of and opinion on a number of commonly used terms and conditions in investment instruments and in particular in structured notes. The Communication further states that the FSMA will supervise compliance of investment instruments with the rules on unfair contract terms, regardless of the governing law of the investment instruments and regardless of whether the offering or distribution in Belgium is based on a passport granted in another EEA jurisdiction.

In this article, we briefly elaborate on the binding nature of the Communication, its scope of application and the FSMA’s interpretations and recommendations.

Binding force of the communication

Since the entry into force of the Belgian Code on Economic Law in May 2014, the FSMA has applied the Belgian rules on unfair contract terms on a case by case basis to offerings and distributions of investment instruments to consumers in Belgium. The FSMA announced in May 2014 that it would use its supervisory powers to verify compliance with these rules.

Prior to the Communication, guidance on the application of the Belgian rules on unfair contract terms to investment instruments was scarce. The annual reports of the FSMA provided some insight into the FSMA’s supervisory practice in this field. Also, a Royal Decree contains a minor number of specificities and exceptions regarding the application of the rules on unfair contract terms to investment instruments.

The Communication is only a policy document. It is not binding on the Belgian courts, although we expect that compliance with the Communication will provide a reasonable degree of comfort. The FSMA also states that it may unilaterally amend the scope of application of the Communication and its interpretation of the Belgian rules on unfair contract terms.

Scope of application

Offering or distributing in Belgium

The Communication is relevant for all offerings and distributions of investment instruments to consumers in Belgium. The FSMA states that it not only applies to investment instruments offered and circulated on the basis of a prospectus that is subject to prior approval by the FSMA, but also to investment instruments governed by a law other than Belgian law and to investment instruments offered or distributed on the basis of a prospectus approved in another EEA member state and passported into Belgium. The Communication also applies to the private placement of investment instruments.

The tipping point for the application of the Belgian rules on unfair contract terms is whether investment instruments are offered or distributed to consumers in Belgium. This will be the case when consumers in Belgium are able to subscribe to these investment instruments. This will, among other things, need to be addressed through appropriate selling restrictions and in the contracts between issuers and distributors.

…to consumers as opposed to retail customers

It is also important to note that the concept of a consumer is not identical to that of a retail investor. A consumer is a natural person who is acting for purposes that are outside their trade, business or profession. A legal entity cannot qualify as a consumer. Also, a consumer is a broader concept than a retail investor. In particular, if individual investors such as high net worth individual investors in Belgium are allowed to subscribe to the offering or distribution of investment instruments, this offering or distribution will be governed by the Belgian rules on unfair terms and by the Communication. Therefore, the selling restrictions will have to expressly refer to consumers within the meaning of the Belgian Code on Economic Law.

…of investment instruments

The concept of investment instruments has a specific meaning as defined in the Prospectus Law. It comprises shares, bonds and other debt instruments and derivatives. The interpretations given in the Communication relate mostly to structured notes. However, the Communication is also relevant for plain vanilla notes and other fixed-term debt instruments and, to a lesser extent, to perpetuals.


The Belgian rules on unfair contract terms contained in the Economic Law Code apply to investment instruments issued since May 2014 and the Communication does not contain a grandfathering clause. However, the FSMA states that the existing investment instruments may not rely on the specific interpretations in the Communication.


The FSMA recommends that where investment instruments are offered to consumers in Belgium on the basis of a passported prospectus and:

  • where that passported prospectus is a base prospectus, the final terms of the public offer must contain a switch-on / switch-off clause, ie state that the unfair contract terms contained therein will not apply in relation to consumers in Belgium;
  • where unfair contract terms are nonetheless included in the terms and conditions of the investment instrument, the offering documents (ie all advertisements and other documents and announcements) relating to the public offer and published by the issuer or by the distributor acting with the consent or cooperation of the issuer must:(i) state that the issuer undertakes to comply with the Belgian rules on unfair contract terms; (ii) identify the unfair contract terms; and (iii) state that these terms will not apply in relation to consumers in Belgium.


The Communication contains the FSMA’s interpretation of the following unfair contract terms:

  • terms enabling the issuer to unilaterally alter the characteristics of the investment instrument which are essential to the consumer;
  • terms enabling the issuer to terminate investment instruments with a fixed term without properly compensating the consumer (except in the case of force majeure); and
  • terms giving the issuer the option of transferring its rights and obligations under the investment instrument without the consumer’s agreement, where this serves to reduce the consumer’s guarantees under the investment instrument.

For each unfair contract term, the FSMA defines conditions under which it will not deem a clause in the terms and conditions of an investment instrument to be an unfair contract term.

The interpretations by the FSMA relate in particular to the following common terms and conditions used in investment instruments (and particularly in structured notes):

  • terms relating to the “underlying assets”, ie: (a) terms relating to the bankruptcy of the issuer of the underlying assets; (b) terms relating to problems of illegality in relation to the underlying assets (illegality, change of law, nationalisation and regulatory action); (c) terms relating to the situation where information on the underlying assets is no longer available (reporting disruption); and (d) terms relating to a change in the investment policy in relation to the underlying assets (strategy breach, fund modification, index modification and index disruption);
  • terms relating to the “issuer”, ie: (a) terms relating to events that are intrinsic to the activity of product development of the issuer (hedging disruption and increased cost of hedging); and (b) terms allowing the issuer to terminate the investment instrument at its discretion (clean-up and stop loss).


This new regulatory guidance by the FSMA certainly provides further clarity on the scope and application of the unfair contract terms rules to the offering and distribution of investment instruments in Belgium. However, the FSMA’s guidance has raised a number of further questions which remain unresolved and will require further clarification.

Issuers and managers will need to carefully consider the target market both for standalone transactions and when setting up a programme or passporting a programme into Belgium.

Further information
This case summary is part of the Allen & Overy Legal & Regulatory Risk Note, a quarterly publication.  For more information please contact Karen Birch –, or tel +44 20 3088 3710.


Legal and Regulatory Risk Note