4. How can one determine whether a structured product is 'particularly complex'?

The FSMA has developed four criteria in order to determine whether a structured product is 'particularly complex'. If any one of these criteria is not met, the product is considered particularly complex.

4.1. Underlying value: The underlying value is sufficiently accessible and transparent to the consumer. Shares and bonds that are listed on a regulated market, for instance, are regarded as sufficiently accessible; credit default swaps, life settlements or hedge funds, by contrast, are considered not to be accessible. Baskets of shares may be considered accessible if they are put together on the basis of an economic principle and in the interests of the client, and if all necessary information regarding their composition is provided.

4.2. Complex strategy: The investment strategy is not overly complex. A strategy is viewed as overly complex if:

  • a decrease in the underlying value is passed on to the investor more than an increase in its value;
  • distributors of the product make use of 'teasers', such as a very high yield that does not apply to the product's entire lifetime, or gifts given upon the purchase of a product;
  • a minimal change in the underlying value has a disproportionate effect on its yield;
  • the capital protection built into the product is conditional.

4.3. Complex calculation formulas: The yield is not calculated on the basis of more than three mechanisms. Mechanisms that work to the advantage of the investor (a minimum return or a returned fixed “by cliquet”) do not count.

4.4. Transparency regarding costs, credit risk and market value: There must be sufficient transparency regarding all costs associated with the product, the name of the issuer must be mentioned, the product's market value must be published at least quarterly and the client must be informed of any significant changes in the risk profile or the value of the product.