A voluntary moratorium from the Belgian Financial Services & Markets Authority is asking distributors to stop selling 'unnecessarily complex' structured products ahead of a public consultation designed to usher in a new regulatory regime.
Distributors who sign the moratorium are committed to ensuring every new structured retail product meets criteria on accessibility of the underlying, complexity of investment strategy, payoff (yield should be derived from up to three mechanisms only) and transparency regarding cost, credit risk and market value.
Proprietary index underlyings can be considered 'accessible' where they are sufficiently diversified, are based on firm economic foundations and are 'in the interests of the customer'. The regime bans underlyings including credit default swaps, indices and baskets that do not meet the inclusion criteria, life settlements, instruments not admitted to a regulated market other than Ucits and assets such as hedge funds that are not available for direct distribution.
"The initiative... is a first step toward a simpler and more transparent range of products," said FSMA chairman Jean-Paul Servais. "The moratorium is intended to ensure that the public consultation we will be starting concerning the new rules on marketing certain structured products to retail investors can be conducted with due serenity," he added.
FSMA said the moratorium reflects the regulator's determination to promote greater [openness] of financial products, which, it said, is one of the lessons learned from the financial crisis. The regulator says it also brings it into line with initiatives taken by foreign counterparties such as the UK FSA, France's AMF, Consob in Italy, Sec and Finra in the United States and Finanstilsynet in Denmark.
The moratorium - which applies to all types of structured products, whether offered as funds, insurance products, notes or deposits - comes into effect on 1 August and will remain in place until FSMA issues new regulations. The consultation on the new regime will begin this summer.