The Financial Services and Markets Authority (FSMA) is launching a moratorium on unnecessarily complex structured products. Distributors who sign on to the voluntary moratorium commit themselves not to distribute on the Belgian market any unnecessarily complex products intended for individual investors.
'The initiative of the FSMA is a first step toward a simpler and more transparent range of products. The moratorium is intended to ensure that the public consultation we will be starting concerning the new rules on maketing certain structured products to retail investors can be conducted with due serenity. The public consultation will lead to a new regulation on structured products,' says the Chairman of the FSMA, Jean-Paul Servais.
'This measure reflects the resolve to promote greater traceability of financial products, which is one of the lessons learned from the financial crisis. The moratorium is also in line with initiatives already taken by our foreign counterparts with regard to complex products,' observes Jean-Paul Servais.
The FSMA has developed four criteria in order to determine whether a structured product is deemed 'unnecessarily complex'. A product is not considered unnecessarily complex if:
1. the underlying security is fully accessible and
2. the investment strategy is not overly complex and
3. the yield is not determined by more than 3 mechanisms and
4. there is full transparency regarding all costs, credit risk and market value.
Financial players who sign on to the moratorium undertake to ensure that every new structured product they distribute to retail investors fulfils all of the above criteria. The moratorium applies to all types of structured products, in whatever form they are offered to the public (investment funds, insurance products, notes, etc.).
The moratorium looks to the future and applies only to products put on the market after the moratorium has come into effect. It does not affect structured products that are already on the market at the time when it comes into effect, nor does it pass judgment as to the risk involved in structured products. This measure is intended to contribute to greater clarity and transparency.
Distributors that intend to observe the moratorium will be placed on a list that can be consulted on the website of the FSMA (www.fsma.be). The FSMA will monitor compliance with the moratorium. Market players that do not observe the moratorium may be struck from the list.
The moratorium comes into effect on 1 August 2011 and will continue until the FSMA issues a new regulation on the sale of structured products to retail investors. The new regulation will be drafted after the public consultation, in which all interested parties will have the opportunity to express their views on the subject. The consultation will begin this summer.
Further information on this initiative is available on the FSMA website: www.fsma.be.