New rules on marketing financial products to consumers and a new Banking Law
Twin Peaks II and the extended powers of the Belgian FSMA
Based on initiatives from the FSMA, the Belgian government has adopted (i) the Marketing Royal Decree and (ii) the Product Ban Royal Decree. The broad scope of the new regulations may have a significant impact on financial institutions that regularly engage in transactions with Belgian retail investors. Product manufacturers will have a heightened responsibility in relation to product disclosure in the context of the distribution of their products in Belgium through Belgian distributors. The new regulations constitute a further implementation of the "Twin Peaks" II Law (which strengthened the supervisory powers of the FSMA), especially in the field of consumer protection. The Belgian regulations seek to implement a number of European initiatives (such as PRIPS and IMD), and the interaction between the Belgian regulations and the European texts is not entirely clear.
New rules on the marketing of financial products to retail consumers
The aim of the Marketing Royal Decree is to improve the pre-contractual information provided in relation to financial products distributed to all retail clients, in particular by (i) imposing a requirement to make a standardised fact sheet (approved by the FSMA) available and (ii) requiring the FSMA's pre-approval of all marketing materials and imposing strict requirements on the content of these marketing materials. The Marketing Royal Decree will enter into force on 12 June 2015.
Broad scope of application of the additional information requirements
The Marketing Royal Decree regulates the marketing of all types of financial products to retail clients. Under the royal decree, "retail clients" are defined as non-professional clients under the MiFID regulations. The notion of "marketing" is broadly defined so as to cover the offering, sale or placement of financial products. Financial products are broadly defined and include savings products as well as investment products.
The obligation to provide retail investors with a fact sheet
Scope of application
The Marketing Royal Decree introduces a requirement to provide retail clients, free of charge, and before making their investment, with a fact sheet. All fact sheets must be approved by the FSMA before they are distributed to clients, except for insurance products whose approval is optional ("opt-in"). The requirement to provide a fact sheet does not apply to (i) investment products marketed within the framework of a public offer in anticipation of which a prospectus is published in accordance with the Prospectus Law (this seems logical, as in these instances, a PD compliant "prospectus summary" should be available), (ii) investment products marketed within the framework of a private placement within the meaning of the Prospectus Law or UCITS Law1 or AIFMD Law,2
and (iii) certain investment products exempt from the prospectus requirement under existing legislation (eg shares issued by central banks, issuances by certain non-profit organisations, certain employee participation plans). In relation to collective investment schemes, the requirement to provide a fact sheet is satisfied on making the KIID available.
Content of the fact sheet
According to the Marketing Royal Decree, the fact sheet should contain a brief, standardised and easy to understand summary of the key characteristics of the product so that potential investors are reasonably able to understand (i) the nature of the product, (ii) the risks it involves, and (iii) inasmuch as it concerns insurance products, the risks covered. The Marketing Royal Decree sets out further specific requirements in relation to the content and the nature of the information. The Marketing Royal Decree contains standardised templates of fact sheets for a certain number of financial products that are within its scope. Fact sheets must be updated and made available to investors for as long as the relevant financial products are marketed on the Belgian territory.
Responsibility for the fact sheets
The Marketing Royal Decree identifies the responsible person for drafting and updating the fact sheets. In principle, any person marketing the product is responsible for the fact sheet. This responsibility can extend to the product manufacturer as well as the distributor.
New regulation on marketing materials for financial products
Under the existing regulations, the FSMA must give its prior approval for all marketing materials in the context of a public offer or admission to trading on a regulated market of investment products (within the meaning of the Prospectus Law) and regulated savings accounts. Under the Marketing Royal Decree, the scope of this requirement is extended to any form of marketing of any type of financial products to retail clients. Marketing is not restricted to public offers and can also include, for example, private placements. Furthermore, the Marketing Royal Decree aims to introduce minimum standards in relation to the content of an advertisement and contains detailed rules on the use of historical performance, awards, ratings and comparisons in advertisements.
The Twin Peaks II Law grants the FSMA the power to introduce a ban or impose limitations on the marketing of certain financial products to retail clients. The FSMA has introduced a ban on the distribution of certain products to these clients. The new regulation was approved by the Product Ban Royal Decree and entered into force on 1 July 2014.
Financial products banned from marketing to retail clients
The product ban applies to financial products linked to Life Settlements, financial products linked to "virtual currencies" and investment instruments linked to Non-Mainstream assets. The last category refers to investment instruments (that are not units in collective investment undertakings), where the return depends directly or indirectly on an alternative investment fund that invests in "Non-Mainstream Assets". This ban also applies to branch 23 insurance contracts, linked to an internal fund that invests, directly or indirectly, in one or more Non-Conventional Assets, or in assets whose profitability directly or indirectly depends on an alternative investment fund investing in one or more Non-Mainstream Assets. "Non-Mainstream Assets" are assets in which Belgian law governed public collective investment schemes or Belgian collective investment schemes for the investment in receivables are not permitted to invest. These collective investment schemes are permitted to invest in assets which are permitted investments for UCITS but not in assets such as commodities, art and products such as wine and whisky.
FSMA Communication on Online Marketing of Non Mainstream Financial Products
The FSMA has issued a communication on the online marketing to retail investors (within the meaning of MiFID) of non-mainstream financial products.
"Non-mainstream" financial products refer to derivatives that are often unlisted (sold over the counter), generally have short-term maturity periods and are often very risky, but are usually presented to clients as very simple products that offer high returns quickly and easily. These products include contracts for difference (CFDs) and so-called binary options. The FSMA reminds firms that distribute these types of products in Belgium of the obligations arising under various financial law rules.
The FSMA regulation on product labelling, approved by the Product Labelling Royal Decree3 includes a requirement to include a "product label" in the fact sheet and marketing materials of financial products marketed to retail clients. The regulation was will enter into force on the same date as the Marketing Royal Decree, ie on 12 June 2015. The scope of products covered by the regulation is very broad.
Other considerations regarding consumer protection
In the insurance sector, the Belgian legislator has introduced MiFID-like conduct of business rules. These pre-empt a number of European initiatives such as the IMD. These new provisions have already entered into force and cover matters such as suitability and inducements and have a significant impact on the distribution of fund-linked insurance products.
A legal framework for "financial planners" has been introduced. Previously no specific legal framework for this activity existed. The Financial Planning Law will enter into force on 27 November 2014. The Financial Planning Law regulates the access to the profession for those who are currently not subject to supervision as a regulated entity, introduces rules for all providers of financial planning services and organises the supervision of financial planners by the FSMA.
New Belgian Banking Law
A significant new development is the introduction of the New Banking Law. The New Belgian Banking Law implements CRD IV, but also introduces a number of specific Belgian elements. A full discussion of this law is outside the scope of this contribution, but we highlight a number of key topics addressed in the law.
- Bank Governance: The New Belgian Banking Law contains a number of provisions strengthening the governance of banks (eg reinforcing the fit and proper test with respect to directors and key executives and introducing an enhanced role of the board of directors with respect to risks). Stricter rules
with respect to loans to directors and affiliates as well as with respect to loans for the acquisition of shares in the credit institution (or affiliates) are also introduced.
- Structural reforms: the law introduces a ban on proprietary trading by credit institutions, subject to certain specific exceptions and safeguards. The exceptions relate to the provision to clients of investment and ancillary services, market-making activities, activities for the hedging of risk, sound and prudent management of liquidity and purchase and sale of financial instruments acquired as long-term holdings.
- Bank Recovery and resolution: the law introduces rules on recovery and resolutions plans ("living wills"). The law also provides for a statutory bail-in mechanism, however, this has not yet entered into force. A royal decree will determine the date of entry into force (taking into account the implementation of the provisions of the Bank Recovery Resolution Directive).
- Remuneration: strict rules on remuneration are introduced. As a general rule, the variable remuneration for identified key persons is limited to 50% of the fixed remuneration or EUR 50,000.00. The Belgian rules in this respect are stricter than the rules at European level.
1 The Law of 3 August 2012 regarding collective investment undertakings meeting the conditions of Directive 2009/65/EC and the collective investment undertakings for the investment in receivables (the UCITS Law).
2 The Law of 19 April 2014 regarding AIFs and their managers (the AIFMD Law).
3 Royal Decree of 25 April 2014 regarding the approval of the FSMA regulation on the technical requirements of a risk label.