Professionals

Technical questions relating to the provisions of the moratorium

Update 21 September 2011: clarification of FAQ 5, 17, 24 and addition of FAQ 26
Update 22 November 2011: clarification of FAQ 17 and addition of FAQ 27, 28, 29, 30, 31
Update 17 January 2012: clarification of FAQ 4 and 23
Update 13 March 2012: clarification of FAQ 16 and 20
Updated on 25 May 2012 – Addition of FAQ 32
Updated on 14 June 2012 – Addition of FAQ 33
Update 12 July 2013 - Clarification of FAQ 20
Update 28 November 2013 - Clarification of FAQ 16
Update 15 July 2014 – clarification of FAQ 5 and addition of FAQ 34
Update 28 November 2014 – clarification of FAQ 10
Update 6 February 2015 : clarification of FAQ 13 and addition of FAQ 35

(*) FAQs are intended to be dynamic texts that are intended to offer concrete replies to the most frequently asked questions, both theoretical and practical. We have sought to answer each question as fully as possible without having to refer to other FAQs. This decision has made a certain degree of repetition inevitable. The FAQs do not, however, provide a complete or definitive answer to every question or problem that you might encounter in the context of the new initiative. Nor can they be treated as legal advice.

  • 1. Does the moratorium apply to structured products for which the distribution period began before 1 August 2011?

    The moratorium applies to the distribution of structured products as from 1 August 2011. It does not apply to distribution that is still under way on 1 August 2011, provided the distribution period is market compliant and will not continue beyond 3 September 2011.

  • 2. What procedure does the FSMA use to assess a distributor's compliance with the moratorium?

    The assessment is carried out in the context of the classic procedure for the approval of marketing materials or of the registration of a product, where applicable (usual contact persons).

    Compliance with the moratorium may also be discussed informally beforehand (pro@fsma.be).

    Where no approval of marketing materials or of a product is involved, the assessment is made on an ad hoc basis (pro@fsma.be).

    The FSMA will respond to a request for approval within a period of five working days starting from the day when the requisite information to be submitted to the FSMA is complete.

  • 3. What about an issuer whose products are distributed by a third-party distributor?

    The moratorium applies within Belgium (principle of territoriality). It is addressed to distributors, not to the issuing institutions, except where the latter distribute their own structured products within Belgium. The moratorium does not apply to distribution outside Belgium.

    It is therefore the responsibility of the distributor who distributes a product in Belgium to determine which clients he may market that product to, depending on whether or not he has signed on to the moratorium and whether he has decided to make use of the opt-out. Specific provisions will be made for intermediaries, in consultation with their professional organizations.

  • 4. Does the moratorium apply to the trading of structured products on a secondary market?

    The moratorium applies to the distribution of structured products to retail investors, regardless of whether the products are traded on a primary or a secondary market.

    It does not apply to structured products acquired via a regulated market or a multilateral trading facility at the buyer's own initiative, without any sales and/or advertising action on the part of the offeror.

  • 5. Must a product mention the name of the issuer?

    The name of a structured investment instrument ('note') must mention the name of the issuer. In accordance with the current regulations, units issued by a structured UCI must mention the name of the UCI subfund, followed by the name of the UCI. The name of a structured class 23 product whose return depends on a 'note' or on a unit issued by a structured UCI must mention the name of the issuer of the 'note' or the name of the subfund of the structured UCI.

    The fact that the name of the issuer or of the UCI is mentioned in the documentation (prospectus, product sheet) does not in itself constitute fulfilment of the above-mentioned conditions.

    Where a financing vehicle is used, the name of the product should contain the following three elements:

    • the name of the issuer
    • the country where the issuer's registered office is established
    • where applicable, the name of the entity to which the investor has a credit risk exposure (in respect of the savings component) of more than 50%.

    The name of the product may under no circumstances refer to an entity to which the credit risk exposure is less than 50%.

    The marketing materials must indicate the entities, including any guarantor, to which the investor has a credit risk exposure of more than 20% in respect of the savings component.

    The above-mentioned 50% and 20% rule is applied at the time of issuance, using ESMA's methodology for UCITS[1]. If, however, the structure of the product specifies that these proportions may change during the product's lifetime, then the marketing materials must mention this and also indicate how the investor will be informed if such a change takes place.

    If a financing vehicle with several subfunds is used, the assets of each separate subfund must serve exclusively to guarantee the rights of both the unit-holders of each separate subfund and the creditors whose claims arise from the establishment, operation or winding-up of that particular subfund.

    The assets allocated to capital repayment must be contractually required to be non-structured, non-subordinated, non-convertible and non-exchangeable, and must be made up of the following investments only:

    a) deposits by a company with an investment grade credit rating that is subject to prudential supervision and is established in a Member State of the European Economic Area, and/or

    b) debt instruments issued by a company with an investment grade credit rating that is subject to prudential supervision and is established in a Member State of the European Economic Area, and/or

    c) debt instruments issued or guaranteed by a Member State of the European Economic Area with an investment grade credit rating.


    [1] CESR's Guidelines on Risk Measurement and the Calculation of Global Exposure and Counterparty Risk for UCITS, CESR 10-788 28/07/2010.

  • 6. What is the scope of the concept of 'distribution'?

    By distribution we mean: offering a product in a variety of ways (advertising, direct sales, placement, advice, etc.) in order to urge the client to accept it. Distribution is thus not limited to recommending a given product to a client in order to urge him or her to accept it.

    The moratorium is not limited to the distribution of structured products without capital protection.

  • 7. Does the moratorium apply to discretionary portfolio management or private placements?

    The moratorium does not apply to discretionary portfolio management. There is no exception made for private placements with retail investors. The moratorium does, however, provide for an opt-out, under certain conditions, for clients with moveable assets of at least EUR 500,000 held with one institution. The decision whether to make use of the opt-out is up to the distributor who signs on to the moratorium, and the decision taken applies to the entire category of eligible clients. The opt-out is therefore not a decision that a client can make on a case-by-case basis.

  • 8. Does the moratorium apply to products purchased solely at the client's initiative?

    The moratorium applies to the distribution of structured products to retail investors. It makes no difference whether the initiative is taken by the client or by the distributor.

  • 9. What is the definition of retail investor and how should the EUR 500,000 limit be interpreted when applying the opt-out?

    Retail investors are investors who are not considered professional clients within the meaning of Article 2, first paragraph, 28°, of the Law of 2 August 2002. Legal persons also fall within this category, unless they are considered by law to be professional investors.

    The EUR 500,000 limit for purposes of the application of the opt-out is determined per individual retail investor, and not per relationship (e.g. company, community of rights or matrimonial property). The sum is calculated per institution and not on the basis of the client's total assets. The opt-out applies only to the portion of the assets that exceeds EUR 500,000.

  • 10. When is a securities index considered to have sufficient renown, track record and transparency and when does a securities index serve as a benchmark?

    'A securities index has sufficient renown, track record and transparency and serves as a benchmark where the following conditions are met:

    • the index has been in existence for at least one year;
    • the index price can be consulted via a freely accessible source (website or Belgian press) and the method of calculation used as well as the composition of the index must have been published in an appropriate manner;
    • the index is used by several other professional and unrelated market operators;
    • it must have a clear, single investment objective in order to represent an adequate benchmark. The clear, single investment objective may be defined in relation to three different types of criteria, which may be used cumulatively:
    1. geographical criterion: the index may apply to a specific geographic market (Europe or South America, for example) and/or
    2. sectoral criterion: the index may apply to a specific economic sector (pharmaceutical and biotech companies, or the banking sector, for example) and/or
    3. 'thematic' criterion: the index may apply to one specific qualitative topic, e.g., the topic of ESG (environment, social and governance), or 'high dividend' or 'low volatility'.
    • its composition must be sufficiently diversified;
    • the frequency with which it is rebalanced must not be too high (maximum quarterly).'
  • 11. When is the selection of shares or the customized index sufficiently diversified?

    A selection of shares is one where various shares are used as the underlying value, and the selection in question remains fixed throughout the lifetime of the product (except for 'corporate events').

    With regard to the rules set out in Articles 34 and following of the Royal Decree of 4 March 2005, a selection of shares or a customized index is sufficiently diversified where at least 16 shares are included and the spread rules set out in the aforementioned Royal Decree are complied with.

    The spread rules apply per selection of shares or per customized index. Where there are several underlying customized indexes, each individual customized index must comply with the spread rules.

    The spread rules do not apply where the underlying value of the structured product consists of UCIs. In that case, the spread rules apply at the level of the UCI.

  • 12. What information must be provided during the lifetime of the product regarding the composition of the share selection or of the customized index?

    In the case of a customized index, information about its composition must be provided at least quarterly during the lifetime of the product.

    In the case of a selection of shares (which is by definition fixed), information must be provided immediately if during the lifetime of the product any change occurs in the composition of the selection. This would include changes in a share within the selection as a result of a 'corporate action'.

  • 13. How is the balance between sharing profits and losses assessed?

    For the assessment of this criterion, the maximum return that the investor can obtain is compared with the maximum risk to which he is exposed as a result of the formula used in the product. The amounts can be calculated at net present value.

    For the purposes of calculating the maximum return, account is taken of the fixed and the variable returns, insofar as the variable return is determined on the basis of the same underlying value that determines the potential loss. Thus, in the case of a structured product whose capital repayment at maturity depends on the performance of a share index, and that offers both a yearly variable return that depends on an interest rate and a one-time variable return at maturity depending on the same share index, account is taken only of the one-time variable return at maturity, and not of the annual variable rate.

    This criterion requires an overall assessment for the entire lifetime of the structured product. It is not enough for it to fulfil the criteria solely at maturity. The criteria are not fulfilled, therefore, if on interim due dates the investor's participation in any increase (or, conversely, the risk to which the investor's counterparty is exposed) is lower than the risk which the investor incurs (or conversely, the profit that the investor's counterparty can earn) when the underlying value falls, even if the effective loss for the investor is calculated only at maturity (so-called autocallables without capital protection).

    A term deposit with a fixed interest rate in a given currency that is repaid in another currency in cases where the latter currency has fallen in value against the former currency, is incompatible with this criterion; the investor’s objective in investing in such a product is therefore not relevant in such a case.

  • 14. When does a minimal change in the performance of the underlying value have a disproportionate impact?

    This is the case where a marginal or incremental change in the performance of the underlying value can have a negative or positive impact of more than 10% of the nominal value of the structured product, on either the repayment of the capital or on the payment(s) of the interim or final return.

    The amounts can be calculated at net present value.

    In order to calculate whether the impact is or is not more than 10% of the nominal value of the structured product, one has to compare the situation in which the marginal or incremental change occurs with one where it does not.

    Thus a structured product with capital protection and a maturity of 5 years that offers an annual coupon of 5%, except if the value falls in relation to the initial value of the underlying, in which case a coupon of 1% is paid, does not fulfil the criteria. In such a case there is in fact, for the entire term, a (non-discounted) difference of 20% between a situation in which there is no marginal decrease in comparison to the initial value and one where such a marginal decrease does take place.

  • 15. What is the meaning of 'overly complex strategies where the capital protection is conditional'?

    A distinction is made between products with capital protection and products without capital protection. Mechanisms intended to reduce or mitigate the risk on the capital cannot be regarded as a form of capital protection.

    A product can only be marketed as a product 'with (partial) capital protection' if the protection covers the entire or at least 90% of the capital and insofar as the protection is unconditional, regardless of stricter provisions that may apply (UCIs).

  • 16. What mechanisms are considered to be to the clients' advantage and hence not taken into account for determining the number of mechanisms?

    Mechanisms that are considered to be to the clients' advantage are those that provide a minimum return or that limit the volatility of the underlying. For the purposes of the moratorium, only the mechanisms described below are considered mechanisms that fulfil these criteria:

    • a mechanism that provides for a minimum fixed amount that is paid out whether on interim due dates or at maturity (minimum annual fixed coupon, repayment of the nominal amount at maturity);
    • a mechanism that fixes the performance of the underlying, and this fixed performance constitutes the minimum basis for a payment, whether on interim due dates or at maturity;
    • an observation value established on the basis of an arithmetic average performance over a specific period or on the basis of the minimum value during a specific period (initial value) or of the maximum value during a specific period (closing value). Where the closing value is established on the basis of an average, the latter may not be calculated for a period exceeding one-third of the product's lifetime (calculated between the date of issue and the date of maturity);
    • a mechanism that gives the client the absolute value of the performance of the underlying.

    The following do not fall within this category: a multiplier, memory coupon, 'best of' features, magnet effect or air bag.

  • 17. When is there sufficient transparency regarding costs?

    Participation in the moratorium means that the distributor provides information in the marketing materials about all costs included in the subscription price or charged over and above the subscription price. Stating the costs in the prospectus does not fulfil this condition.

    By 'costs included in the subscription price', we mean the (maximum) difference between the subscription price and the part of the subscription price that is used for the (acquisition) of the savings and derivative component of the product.

    For the moment, the cost transparency provided for in the moratorium can alternatively be fulfilled, regardless of the structured product's legal form, by complying with the relevant provisions of the KII Regulation.

  • 18. What is meant by an important change in the risk profile or the value of the product?

    The following, among other things, are considered important changes in the risk profile or the value of the product: a change in the rating of the issuer or a change in the risk level of the product according to the risk classification method used for distribution purposes.

  • 19. Who are the 'holders of the product' who must be informed?

    In the case of a dematerialized structured product, the distributor must inform the persons who keep the structured product on an account with the distributor.

    In the case of a registered structured product, the distributor must inform all holders.

    The distributor can choose the way in which he wishes to inform the holders, provided the method chosen makes it possible to reach the holders in person (e.g. message on bank statement or electronic message to holders who bank on-line with the distributor). If the implementation of this method requires adjustments to the system, a clear announcement made on the distributor's website can suffice until the necessary adjustments have been made.

  • 20. What is involved in the distributor's commitment, upon signing on to the moratorium, to submit its marketing materials voluntarily to the FSMA, and how is this done in practice?

    Distributors who sign on to the moratorium and who are not bound by law or regulation to submit their marketing materials on structured products to the FSMA for approval, are asked to provide the FSMA with this documentation before distribution in order that compliance with the moratorium may be verified. Verification of these products does not go beyond this aspect. This commitment applies to:

    • the marketing materials that the distributor uses for distributing structured investment instruments and structured UCIs (private placement with retail investors);
    • the marketing materials that the distributor uses for distributing structured insurance contracts;
    • the marketing materials that the distributor uses for distributing structured deposits.

    This commitment also applies to distribution under the opt-out, in which case the FSMA will only examine whether the formula as referred to in point II.2 of the moratorium is included in the marketing materials and the registration form.

    The documentation can be sent in to pro@fsma.be.

    The FSMA will check the material over within a period of five working days starting from the day when the information submitted to the FSMA is complete.

    If a product is distributed under the opt-out, the check will be performed within a period of two working days following the day of receipt of the documentation.

    With a view to meeting their requirements, distributors will be able to submit all documentation for products distributed under the opt-out on a monthly basis, with the proviso that the following conditions are met:

    • Distributors wishing to make use of this procedure are asked to inform the FSMA of this fact by e-mail (pro@fsma.be) and to e-mail the templates used that include the formula as referred to in point II.2 of the moratorium.
    • Distributors are asked to send an e-mail to pro@fsma.be before the 15th of each month. This e-mail should include all the documentation for products distributed under the opt-out since the 15th of the previous month. Where no product has been distributed under the opt-out, this should be specified in the e-mail.

    If documentation used differs from the template sent or if one of the conditions listed above has not been met, the distributor will be asked to provide this documentation previously to the FSMA.

  • 21. Does the distributor's commitment to submit the value of the savings and derivative component to the FSMA before beginning distribution also apply to products distributed to clients under the opt-out?

    This commitment does not apply to products distributed to clients under the opt-out.

  • 22. Are all entities with a distribution channel that is part of the same group required to participate in the moratorium?

    A group that consist of various entities that have a distribution channel in Belgium (bank, insurance, UCI) can, in principle, sign on to the moratorium only if all entities of the group sign on.

    If a group consists of several entities that are active under completely different names, the entities in question may nevertheless accede individually, on condition that they do not sell structured products issued by other entities of the group that do not fulfil the criteria of the moratorium and on condition that the individual accession does not cause confusion as regards the position of the group.

    A Belgian distributor controlled by a foreign legal person that is also active in Belgium can sign on to the moratorium, even if the foreign legal person which controls it does not sign on.

  • 23. When is an interest rate accessible?

    An interest is accessible, for the purposes of the moratorium, where the retail investor can monitor the changes in the rate via the customary channels such as a freely accessible website and the (Belgian) printed press.

    The CMS (Constant Maturity Swap) rate is published daily in specialised databases that are not accessible to the retail investor. For the purposes of the moratorium, the CMS rate is considered accessible only if the distributor publishes the interest rate periodically (at least weekly) on its website. Where the published rate is not the one used to calculate the coupon payment, the distributor shall ensure that the latter rate is also published on its website (the published rate is generally the closing rate, while many products use the rate for a given date and time to calculate the coupon).

  • 24. Must intermediaries in banking and investment services who are exclusively tied to a central institution, and who are not insurance brokers, make a decision whether or not to sign on to the moratorium?

    Intermediaries in banking and investment services and/or insurance intermediaries that act exclusively in the name of and on behalf of a single principal that has signed on to the moratorium (French - Dutch) do not have to sign on individually to the moratorium. The decision by their principal to sign on applies both to the principal and to its exclusive agents, as from 1 August 2011.

    • Which intermediaries can sign on to the moratorium?
      • brokers in banking and investment services
      • other intermediaries ('non-exclusive') that can distribute 'class 23' life insurance products.
    • As of when can intermediaries sign on to the moratorium?
      After consultation with the professional associations of intermediaries, it was decided that intermediaries can sign on to the moratorium starting on 15 September 2011. An electronic form has been created for the purpose, with which intermediaries may indicate their accession to the moratorium (see below).
    • What do intermediaries commit themselves to by signing on to the moratorium?
      Intermediaries that sign on to the moratorium commit themselves, for the period of the moratorium, to distribute only those structured products that are issued or distributed by institutions which have signed on to the moratorium (French - Dutch).
    • How can intermediaries sign on?
      To sign on, intermediaries can use an electronic accession form that is available on the FSMA's website. The accession takes place in 4 steps:
    1. The electronic form asks intermediaries to enter their contact information (e.g. name, FSMA registration number and email address). For each activity (bank and investment services – B, insurance – A ('class 23') and/or reinsurance – R ('class 23')), they tick the box indicating that they are signing on to the moratorium.
    2. They submit the electronic form using the 'Submit' button.
    3. After submission, they will receive an email from the FSMA asking them to confirm their accession once again. This is done by clicking on the link provided.
    4. The accession is confirmed.
  • 25. How often will the FSMA publish answers to questions of general relevance posed by the sector?

    The FSMA will regularly update these FAQs on the basis of the questions posed by the sector, in order to ensure equal treatment of all parties involved. Updates will be announced on the FSMA website.

  • 26. What is the meaning of 'formula' in the definition of structured product given in the moratorium?

    The moratorium defines a structured product as an investment product (investment instrument, unit issued by a UCI, insurance contract or deposit) that includes a derivative component and the repayment or yield of which, calculated by means of a formula, depends on the performance of one or more underlyings.

    A formula means that one or more payments are made on the basis of one or more calculations on specific dates. This clarification makes it possible to distinguish structured products within the meaning of the moratorium from other products which, although they may contain a derivative, give the individual investor a return or yield that is completely analogous to that of a direct investment in the underlying asset. The repayment of such a product may be requested at the initiative of the investor, in principle at the then prevailing value of the underlying asset and, in the absence of a repayment formula, at any time whatsoever.

  • 27. How is the calculation formula assessed where the underlying of the derivative component of a structured product is either managed in accordance with a CPPI methodology or related technique, or is a customized index?

    Account is taken of the number of mechanisms included in either the algorithm establishing the CPPI (Constant Proportion Portfolio Insurance) or related methodology, or the calculations underlying the customized index. No more than three mechanisms may be used.

    For the purposes of this assessment, the following, among others, are considered to be mechanisms: the average of several components, the sum of several components (e.g. risky and non-risky components), excess return, calculation of the distance or of the volatility, multiplier or divisor, leverage, cap, etc.).

    Units of undertakings for collective investment which invest directly in the underlying securities by means of a CPPI or related technique are not considered structured products and thus do not fall under the moratorium.

  • 28. Does the methodology of the customized index for selecting and weighting the components of the customized index have to be based on a set of pre-determined objective criteria?

    In line with point 4.1 of the moratorium, the customized index used as the underlying of a derivative component is considered accessible if the components of the customized index can be observed at the time of distribution.

    This requires that the initial selection and weighting of the components, as well as any later changes thereto, be made on the basis of objective criteria that are determined at the time of distribution. The discretionary power of the index manager to determine the components is not consistent with this principle.

  • 29. Do share options, warrants or options on units in an investment company with variable capital (bevek/sicav) that are offered by an employer to its employees as part of the compensation package fall under the provisions of the moratorium?

    Share options, warrants or options on units in an investment company with variable capital (bevek / sicav) are not considered structured products as defined in point 3 of the moratorium, and are therefore not included in the moratorium.

  • 30. In the event that the distributor has chosen to make use of the opt-out, where on the marketing materials must the sentence appear stating that the product is considered particularly complex under the terms of the FSMA's moratorium?

    The sentence referred to in point 2 of the moratorium must appear at the top of the first page of the document.

    It is, moreover, good market practice to follow the aforementioned text by this phrase: 'This document is addressed solely to clients who hold moveable assets with X that exceed EUR 500,000 and that allow an investment in structured products with the portion of the moveable assets held with X that exceeds EUR 500,000.'

  • 31. How are the provisions of the moratorium applied to a class 23 insurance contract?

    A class 23 insurance contract that is linked to an internal insurance fund, the assets of which are invested either in a structured product or in a combination of a derivative component and another component, comes under the moratorium.

    A class 23 insurance contract that is linked to an internal insurance fund, the assets of which are invested in securities without any formula being used and without, therefore, one or more payments being made on pre-determined dates on the basis of one or more calculations based on the underlying values, does not fall under the moratorium.

    As regards the fourth criterion, transparency regarding costs also includes the costs charged by the insurer.

  • 32. What conditions must a selection of indexes fulfil?

    A selection of indexes is considered, for the purposes of the moratorium, as an accessible underlying of the derivative component under the following (cumulative) conditions:

    • the indexes that make up the selection must be securities indexes that have sufficient renown, track record and transparency, and that serve as benchmarks;
    • they must comply, by analogy, with the provisions included in the moratorium regarding the selection of individual shares.
  • 33. What is the scope of the teaser?

    The moratorium considers distribution that takes place via a teaser to be a particularly complex strategy. According to the moratorium, a teaser refers, more specifically, to 'a fixed return that does not apply throughout the lifetime of the product, with the exception of interest rate products. The strategy of interest rate products with a fixed return during at least half of the lifetime of the product is not considered particularly complex'.

    For purposes of evaluating teasers:

    • products for which the coupon or repayment at maturity depends on an inflation index or a currency rate are treated as interest rate products;
    • it makes no difference whether the above-mentioned fixed return (i.e. that does not apply throughout the lifetime of the product) is paid out in the course of the product’s lifetime or at maturity;
    • if the fixed return - in some cases combined with a variable return - is not constant, it must increase and follow a logical pattern (for instance, +1% in the second year, +2% in the third year, etc.).
  • 34. Is a subordinated structured product compatible with the moratorium?

    The subordination of the right to repayment, and more generally of the savings component, adds a layer of complexity that is not compatible with the principles set out in the moratorium, which on the contrary is intended to simplify the structured products on offer. As is the case with reverse convertibles or credit-linked notes, these products also entail a heightened exposure to risk. The combination of subordination and of structuring – a situation not yet encountered at the time the moratorium was drawn up – renders these products too complex to be distributed to a wider public. The structuring of the yield may also have the effect of diverting consumers’ attention from the key element of the product, namely, the subordination of the right to repayment. For these reasons, a subordinated structured product may not be distributed to retail investors by signatories to the moratorium, except by applying the opt-out.

  • 35. Does the moratorium apply to bonds issued by commercial or industrial enterprises ('corporate bonds') ?

    Corporate bonds constitute a separate segment of products. The moratorium was not intended to apply to this type of product. In practice, no such complexity has been observed for these products.