The Financial Services and Markets Authority (FSMA) has examined the key information documents made available to Belgian retail clients who buy insurance-based investment products or structured products. The aim was to determine whether these documents are of sufficiently high quality to enable clients to understand clearly the features of these products. As a result of its observations, the FSMA expects the sector to improve in particular the clarity and legibility of the information that these documents must provide.
Internal investment funds, separate management, barrier conditional coupon or quanto participation. These terms do not mean much to a large majority of the population, yet they appear frequently in the key information documents (KIDs) provided to Belgian retail clients, the FSMA has determined.
A KID is a document that must be drawn up by the manufacturer of the product in accordance with European legislation. It contains key information about a financial product. The objective of such a document is to help investors take an informed investment decision and to facilitate comparison among products. The KID is a useful document for this purpose.
The FSMA carried out a qualitative examination of a representative sample of KIDs for insurance-based investment products and structured products.
After contacting the supervised manufacturers individually, the FSMA now wishes to share with the financial sector the most important and most frequent observations and remarks raised as a result of this examination.
Its examination indicated that KIDs do not always achieve a sufficiently high quality and do not always provide sufficiently clear information about the features and risks of the financial product in question. The language used in these documents is often too technical and difficult to understand. Moreover, the font size used is often very small, making it difficult to read. However, clients should be able to understand the KID without having to use a magnifying glass and a financial dictionary.
Respect for the objectives of the legislation in this regard therefore remains a challenge for the sector. The FSMA expects a sustained effort on the part of manufacturers, who are required to give their clients clear and comprehensible documents. It asks them therefore to be more attentive to the quality of their KIDs and to improve their clarity and comprehensibility, in order to enable retail investors to take an informed investment decision. To this end, it is publishing a Feedback Statement that contains the main conclusions of its examination.
The FSMA will continue in future to review attentively the KIDs notified to it. In the process, it will devote particular importance to how the sector responds to the points requiring attention set out in the Feedback Statement. If the FSMA finds that there are still infringements of the PRIIP Regulation, it will take appropriate measures. The FSMA will focus its enforcement action on infringements that are directly at odds with the objectives pursued by the European legislation, namely to enable investors to compare products and make an informed decision. The FSMA is of the opinion that an illegible or incomprehensible KID, in particular as regards the functioning of the product and the risks associated with it, is clearly in contradiction with these objectives.