36. What are the FSMA's expectations regarding product governance (and more specifically regarding the definition of the target market for structured products) when a complex underlying (e.g. a customized index) is used as underlying?

It is essential that structured products reach the right target audience. The FSMA expects manufacturers and distributors to pay sufficient attention to the complexity of the underlying when defining the target market and when verifying the client's knowledge as part of the suitability or adequacy assessment. The FSMA considers that manufacturers and distributors should limit the target market for complex underlyings (including customized indices within the meaning of the Moratorium) to investors with a high level of financial knowledge, referred to in the EMT[1] as "advanced investors". This means that clients with average or basic financial knowledge should be included in the negative target market. Furthermore, distributors should also ensure that the way in which the level of knowledge of the individual non-professional client is assessed is appropriate. Obviously, this assessment needs to be more extensive and sophisticated when a distributor offers structured products linked to complex underlyings. In particular, this assessment should check whether the retail client is capable of evaluating the characteristics and risks associated with the customized indices and the impact on the product's performance. Simply providing marketing advice does not imply that the retail client automatically possesses the knowledge necessary to invest in the product. Finally, the FSMA wishes to emphasise that the same effort is expected for information intended for the sales network. Distributors who choose to sell this type of product must provide appropriate training to the sales network on the characteristics and risks of these products, including the methodology and the advantages and disadvantages of the customized index and any adjustments applied to its performance.


[1] European MiFID Template