FSMA consultation hits structured product market in Belgium

Participants in the structured products industry in Belgium remain at loggerheads over key points from the Financial Services and Markets Authority moratorium.

Responses to calls for comments by Belgium’s Financial Services and Markets Authority (FSMA) in a survey of 36 investors, trade associations and product creators and distributors have revealed differing views over which underlyings should be accessible to retail investors, and whether capital-protected products should be classed alongside riskier products.

The responses from the consultation, published on July 10, show that consumers appear to have largely aligned themselves with the FSMA in remaining averse to complexity. Respondents from the financial industry say that while they favour transparency, they do not agree with attempts to ban certain products or see a particular need to stick to only the simplest structures.

Questions have been raised over the validity of the consumer responses, however, due to the size of the sample and the types of consumers who took part, with the group of seven consumers being made up of three trade unions, two consumer organisations, one investor organisation and a retail investor.

The FSMA report is a compilation of answers to 17 questions on the moratorium, which was rolled out in August 2011. These will be used by the regulator to help draw up the final regulatory framework for the distribution of structured products to retail investors, although as yet FSMA has not given any indication about when this will be published.

Among areas of contention is the use of certain underlyings, such as commodities. The regulator suggests this asset class should be inaccessible to retail investors, with the survey report claiming that all but one of the consumers surveyed “generally agree that commodities should be excluded; they might be accepted as underlyings for medium- or long-term products up to a limited portion of the asset.”

Respondents from the financial sector replied that they are opposed to any form of product ban and raised the point that commodities – or at least commodity indexes and precious metals – should be accepted as underlyings, given diversification requirements and because demand would move abroad if these were banned in Belgium.

“Most experts think commodities is an asset class that fits perfectly into a well-diversified retail portfolio and that informed retail investors should therefore have the opportunity to invest in commodity-linked products without any restrictions,” says Christian Vollmuth managing director at Deutscher Derivate Verband (DDV) in Berlin.

“FSMA’s proposed ban on all commodities other than gold as the underlying is not convincing. From a risk perspective, there is no fundamental difference between investing in gold and investing in commodities such as silver, platinum, palladium, or crude. The core issue is whether there is a liquid and transparent market and easily available price information,” he adds.

“In this respect, a large number of commodities fare better than many other underlyings that are deemed to be perfectly eligible for retail investors. Preventing retail investors from investing in commodities would be purely arbitrary and highly disadvantageous for them compared to institutional investors.”

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