Complex Financial Products – Agreement
10th December, 2013
APB members and CMVM sign agreement on sale of complex financial products to retail customers.
The Portuguese Stock Exchange Commission (CMVM) today signed an agreement with 19 banks on the sale of complex financial products to non-qualified investors.
Associação Portuguesa de Bancos (APB - Portuguese Banking Association) played a central role in the discussion and mediation of the agreement.
The agreement comes into effect on 1 January 2014 and ceases on 31 December 2014 and will be renewed annually if not terminated by the parties.
The banks that signed were Banco Best, Banco BIC Português, Banco Bilbao Vizcaya Argentaria, Banco BPI, Banco Comercial Português, Banco de Investimento Global, Banco Espírito Santo, Banco Invest, Banco Popular Portugal, Banco Português de Investimento, Banco Santander Totta, Banif – Banco Internacional do Funchal, Banif Banco de Investimento, Barclays Bank PLC, BNP Paribas, Caixa Central – Caixa Central de Crédito Agrícola Mútuo, Caixa Económica Montepio Geral, Caixa Geral de Depósitos and Deutsche Bank AG.
The financial institutions involved in the agreement undertake to ensure that complex financial products are sold by properly qualified human resources who are able to understand them, give customers full, accurate information and guarantee that investors are properly advised and the product's suitability for them has been tested before the investment is made.
They also undertake not to sell to retail customers – outside discretionary portfolio management or investment consultancy services – complex financial products that:
- can be classified with an orange flag (high risk) or red flag (very high risk) and with negative average expected rates of return between 20% and 80% based on simulations performed in accordance with Article 13 (2) and (3) of CMVM Regulation 2/2012;
- can be classified with an orange or red flag pursuant to Article 9 of 2/2012 and their income and/or principal depends on more than three of the mechanisms set out in a list attached to the agreement or other mechanisms that these banks and the CMVM consider make them highly complex;
This undertaking not to sell complex financial products does not cover reception, transmission or execution of orders on these products, as long as the service is provided on the customer's initiative.
The financial institutions' commitment also includes setting up an effective system for the prevention and management of conflicts of interest in the sale of complex financial products to ensure that the customers' interests always take precedence over all others.
Retail customers are investors who are classified as non-qualified and hold financial assets of 500,000 euros or less in individual or joint accounts. Financial assets are considered to be financial instruments that they own, not including bank deposits.
The CMVM has monitored complex financial product issues with particular attention and in 2011 set up the Financial Innovation Committee to guarantee more systematic, coherent oversight of their sale, especially by analysing advertising and written information. This investor protection was stepped up when Regulation 2/2012 on complex financial products came into effect at the beginning of the year.
Between January and November of this year, the CMVM analysed 558 adverts and informative documents on complex financial products, 73% more than in 2012. It requested alteration of ads in 84% of the cases.
In advertising, 55 complex financial products were red-flagged, 13 orange-flagged, one yellow-flagged and two green-flagged. Regarding Key Investor Information documents, 139 were red-flagged, 34 orange-flagged, 26 yellow-flagged and 17 green-flagged.
Subscription of these products is one of the issues featuring most in complaints made to the CMVM against financial intermediaries by non-qualified investors.
