On 12 June 2014, the Royal Decree of 12 April 2014 regarding certain information requirements governing the commercialization of financial products to non-professional (retail) clients was published in the Belgian Official Gazette (the “Royal Decree”). The Royal Decree goes into effect on 12 June 2015.
These obligations are in addition to the prohibition to market certain financial products that are based on so-called non-mainstream or non-standard assets to retail clients in Belgium, introduced by regulation of the Belgian Financial Services and Markets Authority (FSMA) on 3 April 2014 (the “Regulation”), as approved by the Royal Decree of 24 April 2014, which was published in the Belgian Official Gazette of 20 May 2014 and went into effect on 1 July 2014.
Prohibited Marketing to Retail Clients under the Regulation
The Regulation bans the marketing of several classes of products considered to be high risk, with little liquidity and considerable complexity for retail consumers. As such, the prohibition applies to the following:
- Financial products that depend on a life settlement (so-called traded life insurance policies)
- Products that consist essentially of derivatives based on virtual currencies, such as bitcoin
- Notes and Class 23 insurance contracts where the return depends on an alternative investment fund (AIF) that invests in non-standard assets, and Class 23 insurance contracts whose return depends on an internal fund invested in such non-standard assets
The FSMA will continue to monitor the market and extend the list if necessary.
Commercialization to Retail Clients under the Royal Decree
In short, the Royal Decree: (i) introduces a general requirement to provide − at no cost − a so-called “information brochure” when commercializing financial products to non-professional (retail) clients, and (ii) regulates advertising for financial products. A schematic overview of the requirements and the supervision thereof is included at the end of this article.
The Royal Decree applies whenever financial products are commercialized in Belgium to non-professional (retail) clients by Belgian or non-Belgian manufacturers, authorized distributors or intermediaries. Commercialization is defined as proposing a financial product, irrespective of how this is done, to induce or encourage a non-professional client or potential non-professional client to purchase, subscribe to, accede to, accept, sign or open the financial product. Subject to certain exceptions, it applies to any kind of financial product as defined in the Law of 2 August 2002 regulating the financial sector and financial services (e.g., savings products, investment products and insurance products).
The content of the information brochure is (strictly) regulated by the Royal Decree and generally requires prior approval from the FSMA. With respect to insurance products only, the Royal Decree allows for an a posteriori review by the FSMA, it being understood that for those products, a prior approval “opt-in” is possible. The Royal Decree also contains specific obligations and rules as to the actualization of the information brochure and how it is to be provided to the retail clients.
To avoid the need for every intermediary to prepare (and actualize) an information brochure for the financial products it commercializes, the Royal Decree provides for a so-called “cascade system”, allowing an intermediary to use the (approved and actualized) information brochure by the actual manufacturer of the financial product (or other person commercializing the product).
The Royal Decree also regulates the advertising for financial products by introducing certain minimum information requirements, as well as rules to be observed when mentioning historical, simulated and future returns, or inserting examples, product comparisons, etc.