On 30 July 2013 the Belgian Parliament passed new legislation (the "Act") to improve the protection of users of financial products and services and the powers of the Financial Services and Markets Authority (the "FSMA").
The Act was published in the Belgian State Gazette on 30 August 2013 and, with a few exceptions, will enter into force on 9 September 2013.
The Act must be considered as an extension of the Twin Peaks I reform instituted by the Belgian Act of 2 July 2010, which amended the Belgian Act of 2 August 2002 on the supervision of the financial sector and on financial services and the Belgian Act of 22 February 1998 establishing the organic statute of the National Bank of Belgium.
The most important changes introduced by the Act are briefly summarised below.
A second act has also been adopted by the Belgian Parliament on 31 July 2013 and published in the Belgian State Gazette on 30 August 2013. This act, which will enter into force on 9 September 2013, modifies the injunctive relief (action en cessation/vordering tot staking) available in the case of violation of financial regulations by amending Chapter V of the Belgian Act of 2 August 2002 on the supervision of the financial sector and on financial services. This second act is not discussed further in this newsletter.
Extension of the powers of the FSMA
The Act increases the administrative sanctions (administrative fines and periodic penalty payments) that the FSMA can impose for violation of the financial regulations. Indeed, the possibility to impose administrative sanctions of this kind was previously sometimes non-existent or limited to specific offences. The Act also allows a more proportionate response by the FSMA, for example in the form of an administrative fine when this seems more appropriate than withdrawing a licence.
The Act also improves the protection of the public against the offer or supply of financial products or services by persons who do not have the required licence. Indeed, the FSMA previously had few powers to intervene against this kind of offence. The Act provides the FSMA with more concrete powers (allowing it to institute more investigations, include more information in its warnings and take stricter enforcement action in respect of offences of this kind).
Finally, the FSMA is entrusted with a new supervision method called ‘mystery shopping’. This allows the FSMA to present itself as a client (without mentioning its capacity of regulator) to regulated entities under its supervision, their executive directors or employees in order to verify that the rules of conduct are being complied with by these entities in their relationship with their clients. Moreover, the FSMA must be able to ask the regulated entities for access to the parts of their websites reserved for their clients in order to carry out ‘ordinary’ remote checks.
Market abuses and transparency
The Act makes several improvements designed to combat market abuses and enhance market transparency, for example:
- it introduces the measures needed to implement Regulation No 236/2012 on short selling and certain aspects of credit default swaps;
- it allows the FSMA to impose temporary measures on the negotiation of financial instruments in exceptional market circumstances;
- it extends the prohibition of market manipulation to manipulation involving derivatives or credit default swaps; and
- it provides for manipulation of benchmarks to be subject to administrative and penal sanctions.
Rules of conduct
The Act increases the consistency of the rules of conduct in the different sets of financial regulations applicable to insurance companies, insurance intermediaries and brokers in banking and investment services.
The MiFID rules of conduct encompass (1) general rules to act honestly, fairly and professionally in accordance with the best interests of the clients and to provide them only with information that is fair, clear and not misleading, and (2) specific rules on the transparency of remuneration, the clients’ information requirements, the know-your-customer rules, etc.
Until now, brokers in banking and investments services were subject to the general rules described above but not to the specific rules (unlike agents in banking and investment services). Pursuant to the new Act, they too will be subject to the specific rules (possibly modified by royal decree) from 1 January 2014.
From 1 January 2014, both the general and the specific rules (possibly modified by royal decree) will also apply to insurance companies and intermediaries which was not the case until now.
Knowledge of financial products
In order to ensure the clients’ protection and to increase the consistency between financial regulations, the Act introduces a requirement for all persons in contact with the public to have a basic knowledge of the financial products in order to be able to provide explanations to its clients in practical terms.
This requirement applies regardless of the capacity in which the person in contact with the client is acting, i.e. no matter whether he or she is an employee of the regulated entity (credit institution, investment firm or insurance company), a broker or an agent.
This knowledge must be about the essential characteristics of the relevant product, i.e. its return (fixed or otherwise), its legal form and the risk of losing the investment. A knowledge of the entire content of the prospectus is however not required.
Implementation of Directive 2010/78 (Omnibus I Directive)
Finally, the Act implements several provisions of Directive 2010/78/UE in respect of the powers of the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA) and the European Securities and Markets Authority (ESMA).
The functions of these three European Supervisory Authorities include ensuring that all financial actors are registered, establishing regulatory technical standards and settling any disagreements that may arise between national competent authorities. The Omnibus I Directive introduces ad hoc collaboration mechanisms between European authorities and the competent national authorities.