What is the consultation about?
On 23 November 2020, the FSMA launched a consultation on its draft Q&As relating to advertisements for investment instruments that are offered to the public in Belgium, admitted to trading on a Belgian regulated market or Euronext Growth or Euronext Access market (or a segment of those markets) (the Draft Q&As), which must comply with the advertising requirements pursuant to the European and Belgian Prospectus legislation. The Draft Q&As also address situations where no prospectus or information note is required but where investment instruments are distributed to non-professional clients.
What is the purpose of the FSMA’s Draft Q&As?
Advertisements relating to securities that are offered to the public must comply with a number of requirements determined at the European level (see article 22 of the Prospectus Regulation and articles 13 to 17 of Commission Delegated Regulation (EU) 2019/979).
The Belgian legislator has extended these requirements to investment instruments other than securities, and to certain situations that are not in scope of the European rules. In addition, advertisements relating to the offer to the public of investment instruments in Belgium generally require FSMA approval before publishing, except in specific situations.
The Draft Q&As aim to ensure compliance with the substantive requirements on advertisements by providing clear guidance and clarification on good practices. With this welcome initiative, the FSMA hopes to enhance the predictability of the FSMA’s position in the advertisement approval process and to create a level playing field. This should speed up the advertisement approval process by reducing discussions over the substantive requirements.
The FSMA states that the Draft Q&As should also be useful for advertisements that are not subject to the prior approval process, but nevertheless need to comply with the advertising requirements and remain subject to (a posteriori) FSMA supervision. Indeed, the “transversal Royal Decree” of 25 April 2014 cross-refers to the above-mentioned advertisement rules in respect of the commercialisation of investment instruments to non-professional investors where no prospectus or information note is required.
What are the main components of the Draft Q&As?
The document comprises three main parts:
- An explanatory note on the general framework regarding the general prospectus and advertisement requirements.
- General Q&As on advertisements for investment instruments that are offered to the public, admitted to trading and distributed to non-professional clients.
- Additional Q&As for financial institutions offering non-equity securities to the public or distributing non-equity securities to non-professional clients.
Part A of the Draft Q&As contains a helpful summary of the general framework for prospectuses and advertisements by clarifying:
- how the European prospectus rules apply in Belgium;
- what operations in Belgium are subject to the substantive rules on advertisements stemming from the European prospectus framework;
- which rules on advertisements apply to the distribution of investment instruments to non-professional clients without a prospectus or an information note;
- what the term “advertisement” means;
- what is to be understood by “other documents and announcements”;
- which substantive rules apply to advertisements upon an offer to the public, admission to trading or distribution of investment instruments; and
7.which advertisements and other documents and announcements require prior approval of the FSMA.
Part B of the Draft Q&As contains a number of technical substantive rules on the content and format of advertisements. The questions range from how references to the prospectus, supplement and final terms should be made (question 2), which events should trigger an amendment to the advertisement and how such amendments should be made (question 4), to how the risks (question 7), return, costs and tax treatment (question 8) and liquidity (question 9) of the instruments should be described in the advertisement.
Part C of the Draft Q&As focusses on financial institutions that offer non-equity securities to the public or distribute non-equity securities to non-professional investors. This concept includes, among other things, structured debt instruments with or without capital protection, bonds with a fixed or variable interest in euro or foreign currencies, and securities with a leverage such as turbo’s and financial warrants and similar instruments. The questions range from whether the advertisement rules apply to general advertisements concerning specific types of investment instruments or the financial institution as such (questions 1 and 2), to detailed recommendations concerning the name of investment instruments (question 3) and the determination of the type or nature of a structured investment instrument (question 4).
Furthermore, Part C of the Draft Q&As provides more detailed guidance on the elements that a financial institution should take into account when (i) determining the target recipients of the advertisement (question 5), the risks to be referred to in the advertisement (question 6), the presentation of the (expected) return and the capital redemption in the advertisement (questions 7 and 8), (ii) using examples to explain the functioning of the instrument (question 9) and (iii) describing the applicable costs in the advertisement (question 10).
In its Draft Q&As, the FSMA also clarifies issues raised in practice by the potential simultaneous application of the substantive requirements on advertising set out in the so-called “Transversal Royal Decree” and the “new” Prospectus Regulation, which is a European measure of maximum harmonisation.
Will the Draft Q&As be binding?
Complying with the good practices set out in the Draft Q&As should facilitate and speed up the prior approval process, however, the Draft Q&As will not be binding. Although the authoritative character of the Draft Q&As is self-evident, the FSMA expressly states that non-compliance with the Draft Q&As would not necessarily result in a breach of the advertising requirements.
What are the practicalities around the consultation?
The open consultation runs from 23 November 2020 until 4 January 2021. It is addressed to the financial industry and investors’ representatives. Reactions to the Draft Q&As may be submitted electronically via email@example.com.
The FSMA consultation webpage: Dutch and French versions.
The FSMA Draft Q&As: Dutch and French versions.
European and Belgian Prospectus legislation:
Transversal Royal Decree of 25 April 2014: Dutch and French versions.