This Finance E-bulletin discusses some key novel concepts that were recently introduced by Belgian Lawmakers, Regulators and NYSE Euronext. It covers
(I) the Laws of 30 July 2013 and 31 July 2013 regarding the strengthening of
(i) the protection of customers of financial products and services and
(ii) the powers of the Financial Services and Markets Authority (FSMA);
(II) the Law of 17 July 2013 implementing Directive 2010/73/EU amending the Prospectus Directive and the Transparency Directive and Directive 2010/78/EU; (III) the FSMA Circular Letter of 2013; and
(IV) NYSE Euronext Rule changes (which were announced on 26 September) with regard to listing and continuing obligations.
I. Laws of 30 July 2013 and 31 July 2013 regarding the strengthening of the protection of customers of financial products and services and strengthening of the powers of the FSMA
On 30 August 2013, the Laws of 30 July 2013 and 31 July 2013 regarding the strengthening of the protection of customers of financial products and services and strengthening of the powers of the Financial Services and Markets Authority ("Loi[s] visant à renforcer la protection des utilisateurs de produits et services financiers ainsi que les compétences de l'Autorité des services et marchés financiers, et portant des dispositions diverses" / "Wet[ten] ter versterking van de bescherming van de afnemers van financiële producten en diensten alsook van de bevoegdheden van de Autoriteit voor Financiële Diensten en Markten en houdende diverse bepalingen") were published in the Belgian State Gazette. Both the Law of 30 July 2013 (the Financial Consumer Protection Law) and the Law of 31 July 2013 (the Procedural Financial Consumer Protection Law), respectively, entered into force on 9 September 2013.
a) Financial Consumer Protection Law
The Financial Consumer Protection Law first implements several provisions of Directive 2010/78EU (the so-called Omnibus I Directive) with regard to ad hoc collaboration mechanisms of the European Authorities: the European Securities and Markets Authority (ESMA), the European Banking Authority (EBA), and the European Insurance and Occupational Pensions Authority (EIOPA). The FSMA is also designated as competent authority to supervise rating agencies (according to Regulation (EU) no. 1060/2009).
The Financial Consumer Protection Law further amends (i) the Law of 25 June 1992 on the non-marine insurance contract, (ii) the Law of 27 March 1995 relating to insurance and re-insurance mediation and the distribution of insurance contracts (the Insurance Mediation Law), and (iii) the Law of 22 March 2006 on mediation in bank and investment services (the Bank Mediation Law). Insurance companies, insurance intermediaries, and intermediaries in bank and investment services must comply with conduct of business rules starting 1 January 2014. These rules are very similar to the MiFID rules. This consistent approach towards the rules, irrespective of (1) the distribution channel or (2) the nature of the product or services that are being offered, not only seeks to improve financial consumer protection but also aims to create a level playing field with regard to financial products distribution.
As a general rule, insurance companies, insurance intermediaries, and intermediaries in bank and investment services must fulfil a duty of loyalty: they must act honestly, fairly, and professionally in accordance with their clients' interests. Information provided to clients and potential clients must be fair, clear, and not misleading. To that, all staff in contact with the public must have a basic knowledge of the financial products being offered and must be able to explain the products' essential characteristics to clients and potential clients. More specific conduct of business rules and rules dealing with conflict of interests in this regard could be introduced by Royal Decree.
As from 1 January 2014 insurance companies, insurance intermediaries, and brokers in banking and investment services must also comply with the special conduct of business rules relating to inducements, suitability, and appropriateness. The Financial Consumer Protection Law introduces administrative sanctions in the form of fines up to EUR 75.000 (for insurance intermediaries and intermediaries in bank and investment services) and up to EUR 2.5 million (for insurance and reinsurance companies and regulated entities). Fines, also introduced for violations of other, non-insurance related violations, allow a more proportionate response by the FSMA with regard to the violations of financial regulations.
The Financial Consumer Protection Law further aims to tackle market abuses and increase market transparency. In addition to implementing Regulation (EU) no. 236/2012 on short selling and credit default swaps (which designates the FSMA as competent authority and attributes to it the competences under Regulation (EU) no. 236/2012), the Financial Consumer Protection Law extends the prohibition of market manipulation to manipulation that involves credit default swaps and other derivatives. In the wake of the recent LIBOR scandal, manipulation of benchmarks (by providing wrong or misleading information or by committing any other act) is sanctioned both administratively and criminally. These sanctions apply if the manipulation occurs in Belgium (regardless of whether it relates to a Belgian or foreign benchmark).
If there are "exceptional market circumstances" that threaten or risk threatening the functioning of a Belgian regulated market as well as one of the financial instruments traded on a regulated market or their issuer, the FSMA may impose temporary measures on the negotiation of financial instruments. To that, the FSMA must obtain advice from the National Bank of Belgium. The measures may not exceed one month (which may be extended to a maximum period of three months).
The FSMA's enforcement powers are significantly extended (e.g., it can take stricter enforcement actions if financial products and services are being offered by persons that did not obtain the required license, among other powers). In order to strengthen actual enforcement of financial regulations, the Financial Consumer Protection Law furthermore:
i. provides a legal framework for "mystery shopping", i.e. a technique where a regulator shops for financial products and or services without disclosing its identity as supervisor, including an exhaustive enumeration of provisions for which mystery shopping is permitted (and which can further be extended by Royal Decree);
ii. regulates supervisory access to non-public parts of websites that offer financial products and/or services (without accessing individual client information); and
iii. allows the FSMA to gather from the external ombudsmen information on the most frequent consumer complaints.
The Financial Consumer Protection Law also empowers the FSMA to ban or to introduce conditions for the offering of financial products or certain categories of financial products to non-professional clients, to increase market transparency amongst others by introducing product labels, to recommend model questionnaires to determine investors' profiles (KYC) and to introduce conduct of business rules with regard to savings accounts. A Royal Decree could also introduce rules on advertising and on other documents that are provided in the context of offering savings accounts.
The Consumer Protection Law not only lays down provisions for strengthening public enforcement but it also includes measures relating to private enforcement. With regard to violations of conduct of business rules, investors indeed benefit from a new "presumption iures tantum" with regard to the causal link between the violation of a conduct of business rule, on the one hand, and a financial consumer's investment decision, on the other hand. This presumption applies regardless of any contractual exoneration. The Financial Consumer Protection Law finally stipulates that certain transactions that violate financial regulations are ipso jure null.
b) Procedural Financial Consumer Protection Law
The Procedural Financial Consumer Protection Law deals with procedural aspects of financial consumer protection. It introduces amendments to the injunctive relief ("action en cessation"/ "vordering tot staking") with regard to the violation of financial regulations. The Procedural Financial Consumer Protection Law indeed essentially provides for the inclusion and modernisation of provisions with regard to the injunctive relief under the Law of 4 December 1990 on Financial Transactions and Financial Markets in Chapter V of the Belgian Law of 2 August 2002 on the Supervision of the Financial Sector and on Financial Services (the Banking Law).
II. The Law of 17 July 2013 implementing Directive 2010/73/EU, amending the Prospectus Directive and the Transparency Directive, and Directive 2010/78/EU
On August 6, 2013, the Law of 17 July 2013 implementing Directive 2010/73/EU, amending the Prospectus Directive and the Transparency Directive, and Directive 2010/78/EU (the Amending Law) was published in the Belgian State Gazette. This Law amends (i) the Law of 16 June 2006 on the public offering of investment instruments and the admission to trading of investment instruments on a regulated market (the Prospectus Law), (ii) the Banking Law, (iii) the Law of 2 May 2007 on the publication of major holdings in issuers of which the shares are admitted to trading on a regulated market, (iv) the Law of 1 April 2007 on public takeovers and (v) the UCITS Law.
The Amending Law extends the regime of harmonized transactions to which the so-called European Passport applies. It extends this to offerings of investment instruments in closed-end UCIs where the total consideration of the offering in the EEA is less that EUR 5 million, calculated over a period of 12 months. However, the Prospectus Law still requires the publication of an FSMA-approved prospectus for offerings below the aforementioned threshold where the total consideration of the offering is more than EUR 100.000 (i.e., the non-harmonized transactions).
Furthermore, the Amending Law amends certain public offering thresholds so that these offerings of investment instruments in closed-end UCIs may no longer qualify as public offerings: offerings addressed to less than 150 persons other than qualified investors (before 100 persons), and offerings of investment instruments in closed-end UCIs with a total consideration per investor and per offering that is more than EUR 100.000 calculated over a period of 12 months (before EUR 50.000), do not qualify as public offerings. The definition of "qualified investor" was amended and is now aligned with the definitions of the terms "professional clients" and "eligible counterparties" under the MiFID.
The Amending Law also extends to certain companies the exception to cover the obligation to publish a prospectus in relation to employee share schemes. These are companies whose head office or registered office are in the EEA or companies that are established outside the EEA whose securities are admitted to trading on a regulated market or on a third-country market that is considered by the European Commission as equivalent to a regulated market.
Moreover, the Amending Law implements the rules regarding the contents and (standardised) format of the summary of the prospectus and regarding civil liability for the summary of the prospectus.
According to the Amending Law, the public offering thresholds and the definition of "institutional and professional clients" in the UCITS Law have been aligned with the amendments to the Prospectus Law. Therefore, these securities offerings in open-end UCIs will no longer qualify as public offerings: (i) offerings addressed to less than 150 persons other than institutional or professional clients (before 100 persons), (ii) offerings with an aggregate consideration of at least EUR 100.000 per investor and per class of securities (before EUR 50.000), (iii) offerings of securities other than units in open-end UCIs with a nominal value per unit of at least EUR 100.000 (before EUR 50.000). The definition of "institutional or professional investors" has also, as the definition of ‘qualified investors' under the Prospectus Law, been aligned with the definition of professional clients and eligible counterparties under the MiFID.
Before the Amending Law's entry into force, the UCITS Law applied to announcements, advertisements, and other items relating to a public offering of units in UCIs, irrespective of whether these public UCIs were open-end or closed-end ones. However, the public offering rules and the prospectus requirements laid down in the Prospectus Law did apply to public offerings of units of closed-end UCIs. The UCITS Law was therefore amended so that its public offering requirements only apply to units in open-end UCIs, whereas the rules regarding the prospectus and now also regarding announcements, advertisements, and other items relating to a public offering under the Prospectus Law apply to closed-end UCIs.
The Amending Law entered in force on 16 August 2013. However, the new rules do not apply to transactions that are already pending on that date.
III. FSMA Offering Circular 2013
The new FSMA Circular Letter of 2013 contains an almost-complete restatement of the (simplified) notification procedure described in the former Circular Letter. Pursuant to the latter, the FSMA allowed Belgian and foreign UCIs fulfilling the conditions of the UCITS Directive to already-as from 1 July 2011-use the notification procedure described in Articles 91 to 96 of the UCITS Directive pending the implementation of the UCITS Directive into Belgian law.
The new UCITS Law of 3 August 2012 was enacted to ensure the implementation of Directive 2009/65/EC on the coordination of laws, regulations, and administrative provisions relating to the collective investment in transferable securities (the UCITS Directive). Therefore, the FSMA published in February 2013 a new Circular Letter relating to the notification procedure for UCIs governed by the law of another EEA Member State and fulfilling the conditions of the UCITS Directive, which is now making reference to the new UCITS Law of 3 August 2012.
IV. NYSE Euronext Rule changes with regard to listing and continuing obligations
On 26 September, NYSE Euronext announced Rule changes with regard to listing and continuing on the Euronext Markets. The rules will be effective as from 15 October 2013.
Material changes to Chapter 6 of the NYSE Euronext Rule Book include:
- the amended scope of the requirement under Rule 6204 to appoint a Listing Agent (NYSE Euronext no longer requires the appointment of a Listing Agent for debt Securities, warrants, ETVs, ETFs, ETNs, or other equivalent Securities (including units or participations)-this without prejudice to National Regulations);
- the reduction of the term for a decision in respect of an application to 30 days (from 90 days) following receipt of a complete application file (Rule 6301);
- the development of standard Application Forms for the admission of Securities to Euronext Markets-these Forms serve as evidence of the contractual relationship between NYSE Euronext and the Issuer once the admission is approved (Rule 6501);
- the introduction of a new listing measure: the issuance of a notice to the market informing that an Issuer does not comply with its obligations (see Rule 6901/2) and two special compartments: the "Recovery Box" (that groups together Securities of Issuers that are subject to certain insolvency procedures) and the "Penalty Bench" (for Issuers that have repeatedly not complied with the Euronext Rules);
- the removal of the requirement for Issuers to provide NYSE Euronext with (i) copies of its periodical information and (ii) clarification of the requirements in respect of corporate and securities events. Issuers are no longer required to provide their periodic information (e.g., annual and interim reports) to NYSE Euronext separately since the availability of this information is ensured by the implementation of the EU Transparency Directive (Rule 61003/2);
- the requirement for Issuers to inform the Relevant Euronext Market Undertaking of "corporate and securities events" in respect of the Securities admitted to listing at least two (2) trading days in advance of the earlier of:(i) the public announcement of the timetable for any such corporate or securities event; or (ii) the corporate or securities event having effect on the market or the position of the holders of the relevant Securities (see Rule 61004 that also specifies the (non-limitative) list of the most common corporate and securities events of which NYSE Euronext must be informed in advance); and
- clarification as well as certain changes for delistings (e.g., the deletion of the Rule providing that Euronext may delist if in its opinion less than 5% of the Securities remain available for trading and the introduction of a delisting ground in case facts or developments occur or have occurred in respect of an issuer which is detrimental to the reputation of Euronext as a whole).