The Belgian FSMA has launched a consultation on the new rules on marketing materials for financial products distributed to retail clients, introduced by the Transversal Royal Decree.

The new rules on marketing materials distributed to retail clients in Belgium entered into force  on 12 June 2015 and imposes strict requirements on the content marketing materials for financial products distributed to the retail consumers.

The entry into effect of the other provisions of the decree relating to a pre-approved fact sheet containing the key characteristics of the product has been postponed.

Introduction

The Belgian Financial Services and Markets Authority (FSMA) has launched a consultation on further regulatory guidance regarding the new rules on marketing materials for financial products distributed to non-professional clients.

The new rules, set out in Title III of the Royal Decree of 25 April 2014¹ (the Transversal Royal Decree), entered into effect on 12 June 2015. The Transversal Royal Decree imposes strict requirements on the content of marketing materials relating to financial products. Under existing legislation, pre-approval by the FSMA for marketing materials relating to certain financial products was already required.

The entry into effect of the other provisions of the Transversal Royal Decree on the obligation to produce an FSMA pre-approved fact sheet (fiche d’information/informatiefiche) containing all the key characteristics of the marketed financial product (such as the costs, guarantees, risks etc.) under Title II of the Transversal Royal Decree has been postponed indefinitely pursuant to a Royal Decree of 2 June 2015². The postponement aims to ensure alignment with the requirements contained in the PRIIPS Regulation³ that shall apply from 31 December 2016. Delegated acts of the PRIIPS Regulation and guidelines are still under construction.

Given the many practical questions generated by the new rules on marketing materials, the FSMA has prepared a draft circular letter with further practical guidance. The consultation on the draft circular letter (the Draft Circular Letter) is open until 24 July 2015.

The new set of rules adds another layer to the legal framework on the protection of consumers of financial products and services, such as the MiFID conduct of business rules, the prospectus and fund legislation, the moratorium on the distribution of particularly complex products, the product ban on certain financial products, the new insurance regulations (for insurance products) and the general market practices and consumer protection rules contained in Book VI of the Code of Economic Law⁴.

New regime for marketing materials for financial products distributed to non-professional clients

The Transversal Royal Decree is part of the 2013 Twin-Peaks II reform package⁵ which aimed to create a level playing field for customer protection in the distribution of financial products, in anticipation of the long awaited revision of the Insurance Mediation Directive⁶.  

Title III of the Transversal Royal Decree regulates marketing materials for various types of financial products to non-professional clients. We briefly summarise below the essential features of the Transversal Royal Decree in relation to marketing materials.

Essential concepts  

Non-professional clients: MiFID concept of retail clients

"Non-professional clients" are defined as non-professional clients under the MiFID regulations.

Marketing

"Marketing" is broadly defined as the presentation of a financial product, regardless of the way it is presented, to induce a non-professional client or a potential non-professional client to purchase, subscribe, adhere, accept, sign or open a financial product.

Financial products

• Financial products are broadly defined and include savings products, investment products as well as certain insurance products.
• Savings products include regulated savings accounts, non-regulated savings accounts and term deposit accounts (with the exception of certain payment accounts) as well as certain life insurances.
• Investment products include "investment instruments" (within the meaning of the Prospectus legislation, i.e. a broad concept capturing all types of instruments that allow to make a financial investment), certain life insurance contracts (e.g. unit-linked life insurance contracts) as well as financial products that have the characteristics of savings products as well as investment products

There are certain exemptions for pension products. In addition, the information obligations of the Transversal Royal Decree do not apply:  

i. to the marketing of financial products that require an initial counter-value of 100,000 euro or, in the case of open ended collective investment funds, of 250,000 euro; and
ii. when the marketing of a financial product already issued takes place in the context of a service that exclusively consists in the receipt and execution of orders, subject to certain further conditions.

Regulation on marketing materials for financial products

All marketing materials in the context of a public offer or admission to trading on a regulated market of investment products (within the meaning of the prospectus legislation) or the public offer of units in collective investment undertakings and in the context of regulated savings accounts must be pre-approved by the FSMA.

Marketing materials for financial products must satisfy a number of general conditions such as, but not limited to, the obligation to (i) include information that is not inaccurate or misleading; (ii) not only state the advantages of the product, but also to give a clear and balanced indication of the risks, limitations and/or conditions; (iii) include important elements, declarations or warnings without minimising them, etc. Note that these requirements apply regardless of whether the materials are subject to a pre-approval by the FSMA.

Furthermore, minimum standards have been introduced in relation to the content of advertisement. These include for example, the name of the product, the law applicable to it, its maturity date, minimum subscription amount, etc.

Finally, detailed rules are provided on the use of historical performance, awards, ratings and comparisons in advertisement.

The Draft Circular Letter provides practical guidance on the requirements in relation to marketing materials under Title III of the Transversal Royal Decree.

A selection of topics from the Draft Circular Letter

The FSMA explains that the practical guidance in the Draft Circular Letter takes into account the existing circular letters and legal doctrine on the supervision of advertisements on certain financial products insofar as these have been integrated into the Transversal Royal Decree or that these remain valid on the basis of other legislation.

Professional activity  

The rules of the Transversal Royal Decree and the Draft Circular Letter apply to the marketing of financial products by regulated distributors or intermediaries, as well as to product manufacturers (including issuers) marketing their own securities, without intervention of a regulated distributor or intermediary. This is in line with the definition of "execution of orders on behalf of clients" under MiFID II⁷. This definition also includes "self-placing", i.e. the conclusion of agreements to sell financial instruments issued by an investment firm or a credit institution at the time of their issuance.

A resale of financial products between non-professionals is however excluded from the rules.

Marketing

In its Draft Circular Letter, the FSMA emphasises that marketing (commercialisering / commercialisation) is a very broad term.

Marketing is broader than the notion of public offer in the prospectus legislation or fund legislation and includes financial products offered in the context of a private placement. By way of example, the proposal made by a credit institution to a client to enter into an OTC-derivative for hedging purposes, or the free, i.e. without charge, offer to employees of securities under a stock option plan, are therefore included in the scope of the rules on marketing. However, the definition does not apply to discretionary asset management for the account of non-professional clients, provided that the manager takes investment decisions on behalf of its client. It is important in that context that the client does not intervene in the decision process⁸.

The marketing of a financial product already issued that takes place in the context of a service that exclusively consists of the receipt and execution of orders, is excluded subject to certain further conditions. This exception can for example be used where service providers active in the receipt and transmission of orders or the execution of orders publish a list of existing financial products on their website on the basis of which clients can make purchase orders. Indeed the mere execution of an order on the secondary market at the request of a client without marketing is not contemplated by the rules. However, this exception does not apply where a financial institution makes a public offer or private placement of products included on such list.

Non-professional clients

This definition includes both individuals and legal entities that are not professional clients under the MiFID classification. This term includes for example SMEs. The concept of "non-professional client" in this context is broader than under the Belgian consumer protection laws (which refers to an individual acting outside the scope of its professional activities, although contracts that are partially entered into for commercial persons do not necessarily exclude the qualification as consumer).

In Belgium

The marketing must be targeted to the Belgian territory, regardless where the agreement to buy the product is signed. If financial products are marketed by means of a website and the marketing is carried out by a person who is not established in Belgium, the FSMA may decide that the Belgian territory is targeted on the basis of criteria such as for example the use of language on the website, information on tax treatment, indication of a point of contact in Belgium, the existence of a notification of provision of services in Belgium or the web-address.

Advertisement and other documents and notices

Advertisement is defined as any communication specifically aimed at promoting the sale of a financial product, regardless of the channel through which or the way in which it occurs. The rules apply to advertisement distributed in the context of the marketing of a financial product and to all other documents and notices distributed in that context.

In addition, the rules apply not only to advertisement used when the products are initially marketed, but also to general public documents that are distributed later and that can be used in the context of a resale of the products. By way of example, comments on investment funds that are published periodically and that aim to provide information to the public on the composition of the investment portfolio of the funds are in scope.

However, corporate action messages, general reputation campaigns for a financial institution or educational brochures are not considered as marketing materials within the meaning of these rules. The Draft Circular Letter also contains further clarification in relation to advertisement for categories of financial products.  

In order to be captured by the rules, the advertisement and other documents and notices must be distributed by a product manufacturer, regulated distributor or intermediary that can issue, transfer or open the financial product, or by someone who is acting on their behalf. The term product manufacturer is defined as the person that has developed or issued the financial product for marketing by itself or a third party as further clarified with some examples. Any person that directly or indirectly receives any remuneration or advantage in relation to the marketing of a financial product is deemed to act on behalf of the product manufacturer, regulated distributor or intermediary. Documents used by independent investment service-providers are therefore out of scope.

Requirements in relation to advertisement

The Transversal Royal Decree and the Draft Circular Letter contain very detailed rules in line with the MiFID-duty to provide clear, fair and complete information to non-professional clients.

Advertisement must comply with the following requirements:

• the information may not be incorrect or misleading;
• the potential advantages may not be emphasised without a correct, clear and balanced indication of the related risks, limitations and conditions;
• important elements, mentions or warnings may not be concealed, mitigated or disguised;
• no emphasis is laid on characteristics that are not relevant or that are of little relevance for a good understanding of the nature and risks of the financial product or the cover offered and the calculation of the premiums for insurance products;
• the information must be in line with the information included as the case may be in the prospectus, the information sheet, the essential information for the investor or saver, and with other contractual and pre-contractual information;
• the information must be presented in such a way that it is comprehensible for a non-professional client;
• advertisement must be recognisable as such;
• any confusion with advertisement for the product manufacturer or the person that markets or manages the financial product or with advertisement for a financial service is prohibited;
• advertisement that simultaneously relates to different types of financial products must make a clear distinction between the different types of financial products in its format and content.

The FSMA clarifies these requirements in the Draft Circular Letter and gives some examples. The FSMA offers further guidance for example on the choice of the name of a financial product, the use of ambiguous or misleading terminology, subjective assessments, the identification of the nature of a financial product, the identification of the target group for the financial product, the presentation of advantages related to the product, the presentation of the coupon or remuneration, information on the repayment of principal, etc.

Besides these general requirements, there are a number of minimum content requirements for advertisement that to some extent depend on the nature of the financial product. These relate to, for instance, the name of the product, the applicable law, the type of product, indication of the most important risks, costs, etc. These are further clarified in the Draft Circular Letter. The possibility to omit certain information because it would not be technically possible to include it is determined taking into account the information medium used.

Finally, detailed rules are provided on the use of historical performance, awards, ratings and comparisons in advertisements. The Draft Circular Letter also offers further guidance in this respect.

Application of general market practices and consumer protection legislation

Besides the requirements of the Transversal Royal Decree as further clarified by the Draft Circular Letter, marketing materials must also comply with the market practices and consumer protection rules contained in Book VI of the Code of Economic Law, which as of 31 May 2014 also applies, as a general rule, to the marketing of financial products and services.

Despite the fact that the Royal Decree of 23 March 2014 provides a number of derogations from the requirements of Book VI, there are many uncertainties in relation to the concrete application of the general market practices and consumer protection rules to financial products and services. The Draft Circular Letter contains further guidance e.g. on joint offers of products and comparative advertising.

There is an increased focus of the FSMA on the application of the general market practices and consumer protection legislation. This development has relevance beyond the marketing materials. E.g. in the 2014 annual report of the FSMA, the FSMA discussed the application of the legal provisions on unfair terms in consumer agreements to the terms and conditions of bonds with a call feature.

Interaction with conduct of business rules

The FSMA also considers that an intermediary that distributes advertisement for one or more financial products cannot simply assume that the advertisement does not contain investment advice. It should be verified whether the advertisement contains such advice. As the case may be, the requirements for the provision of advice should be verified, including for instance suitability. Specific recommendations are provided for where the marketing materials refer to an investor profile.

Approval of advertisement by the FSMA and enforcement measures

As indicated above, all marketing materials in the context of a public offer or admission to trading on a regulated market of investment products (within the meaning of the prospectus legislation) or the public offer of units in collective investment undertakings and in the context of regulated savings accounts must be pre-approved by the FSMA. The pre-approval powers of the FSMA do not in the current state of the Transversal Royal Decree apply to the whole range of financial products. They currently apply only to those financial products for which such pre-approval requirement already existed in specific legislation other than the Transversal Royal Decree.

The Draft Circular Letter describes in detail the procedure for pre-approval of the advertisements and of all other marketing communication. The FSMA must review and approve the draft documentation submitted within 5 working days (15 for collective investment undertakings). The FSMA will be deemed to have rejected the materials if they are not approved during this period.

Marketing materials for other financial products will for the time being be subject to the ex post review of marketing materials by the FSMA. This relates to the following financial products:

• investment instruments and units in collective investment schemes (in both instances, that are not offered in the context of a public offer requiring the publication of a prospectus);
• insurance products;
• term deposits and treasury certificates (bons de caisse); and
• certain savings accounts (for which the FSMA does not have to pre-approve a document with essential information for the savers).

For financial products for which FSMA does not (yet) have pre-approval powers, it may use other supervision tools, like the injunction addressed to the financial institution or insurance company to apply the provisions of this legislation, or the publication of its viewpoint regarding a breach of the rules, or the imposition of a penalty. The marketing action may also be prohibited by way of a cessation order.

Transitional rules

Title III of the Transversal Royal Decree entered into effect on 12 June 2015. However, until 31 December 2015, the provisions of Title III do not apply to advertisement and other documents and notices where distribution was started before 12 June 2015. For products that are marketed on a continuous basis beyond 1 January 2016, the advertisement will, as the case may be, need to be amended to comply with the rules of the Transversal Royal Decree.

Notes:

1. Royal Decree of 25 April 2014 on information obligations in connection with the marketing of financial products to retail clients, adapted by Royal Decree of 2 June 2015.

2. Royal Decree of 2 June 2015 amending the Royal Decree of 25 June 2014 on information obligations in connection with the marketing of financial products to retail clients.

3. Regulation (EU) No 1286/2014 of the European Parliament and of the Council of 26 November 2014 on key information documents for packaged retail and insurance-based investment products (PRIIPs).

4. Book VI of the new Belgian Code of Economic Law code entered into force on 31 May 2014. It contains further clarifications about the application of the general market practices rules to financial products and services.

5. The Twin-Peaks II package comprises (1) the Law of 30 July 2013 on the strengthening of the protection of consumers of financial products and services, and the powers of the Financial Services and Markets Authority (FSMA), and containing various others measures, (2) three executing Royal Decrees of 21 February 2014 and a Royal Decree of 25 April 2015.

6. Directive 2002/92/EC of 9 December 2002 on insurance mediation (IMD I).

7. Article 4.1. (5) MiFID II

8. In the Draft Circular Letter, the FSMA mentions that it is important that the client does not intervene in the investment decision and e.g. must not pre-approve a selection of financial products (e.g. a list of specific funds). Even if the asset manager then makes a final selection based on the pre-selection made by the investors, there will still be a "marketing" of financial products according to the FSMA.