Issuers or distributors typically expect limited comments when they circulate their base documentation or advertising material with respect to investment instruments for a Belgian law review. Indeed, as the instruments either fall outside the scope of the Prospectus Regulation or are compliant with its requirements, one would expect limited local differences.
Instead, certain Belgian requirements seem to be stricter than is the case in many other jurisdictions when it comes to documentation, advertising and even application of consumer protection rules. This may lead to a heavier than expected mark-up of the base documentation, the advice to draft an additional information memorandum or even the advice to substantially alter the commercial terms or not to launch the product in Belgium at all ...
In this short note, we will highlight three pitfalls which in our experience often come as a surprise to Belgian, European and international clients alike. Ideally, these points are raised and tackled early in the issuance process, taking into account the specific instruments that are issued.
2 Key take-aways
- Belgian law has gold-plated the Prospectus Regulation, resulting in a more complex regime of several 'de minimis' This makes reliance on a 'de minimis' exemption often trickier than expected and may require publication of an information memorandum, even when no prospectus is required. Some workarounds do exist however.
- Additional requirements apply to especially marketing documentation. Notably, the rules on advertisements of the Prospectus Regulation also apply to certain offerings for which the publication of a prospectus under the Prospectus Regulation is not required, including certain private placements. This often comes as a surprise in particular to AIFs, as well as issuers of structured products.
- Finally, general Belgian consumer protection rules and/or certain blue-sky consumer protection regimes may result in restrictions on the mechanics of a product when offering investment products to consumers. This especially (but not solely) impacts structured and/or leveraged products.
3 Information memorandum
What? – Requirement to issue information memorandum where no prospectus is required.
Relevant to whom? – Issuers who intend to rely on a 'de minimis' exemption under the Prospectus Regulation and do not issue a KIID.
Belgian law imposes disclosure requirements at national level even if the issue amount is lower than the Prospectus Regulation1-imposed threshold of 1,000,000 EUR.2 This makes reliance on a 'de minimis' exemption often trickier than expected.
In principle, Issuers must not issue a prospectus if the total consideration of the offer in the EU over a twelve-month period does not exceed EUR 5 million.3 However, Belgian law still requires the publication of an information memorandum if the total consideration of the offer is equal to or higher than EUR 500,000 or if the contributions of an individual investor exceed EUR 5,000.
This information memorandum should set out key information on the issuer and the instruments, as well as the most important risks related to the issuers. It may not be longer than 15 pages. It may be prepared in English, except if marketing materials are prepared in Dutch or French – in which case the memorandum must also be available in Dutch or French respectively4. Importantly, it must be filed for publication (but in principle not pre-approved) with the Belgian financial markets authority FSMA.
Note that this information memorandum is not a summary in the meaning of the Prospectus Regulation, nor a KIID in the meaning of the PRIIPS regulation and is not required if a KIID or prospectus is published. Furthermore, the information memorandum is also not required when the issuer relies on other private placement exemptions than de minimis (eg. Max 150 investors, only qualified investors, denomination higher than 100k EUR etc). Hence, in practice, the requirement to publish an information memorandum is quite easy to avoid.
4 Advertising requirements
What? – Additional requirements imposed on advertisements (and other documentation).
Relevant to whom? – Professional issuers of investment instruments to non-professionals. In particular surprising to issuers (AIFs) who intend to rely on private placements, and issuers of structured products.
The so-called Transversal Royal Decree imposes substantive and formal requirements to advertising material (and other documentation) with respect to certain investment products. Although offers that require an initial investment of at least EUR 100,000 (or EUR 250,000 for UCITS-units) in principle are excluded from the Royal Decree's scope5, the Belgian supervisor (FSMA) takes the view that this exclusion does not apply to the relevant advertising requirements.6
On this basis, the FSMA applies a.o. advertising requirements included in the Prospectus Regulation to professional offers of investment instruments to non-professional clients where the initial investment is higher than EUR 100,000.7 In our experience, in particular the following requirements on marketing (and other) documents tend to surprise (Belgian and international) issuers:
- a prohibition to include reference to competent authorities in advertisements8;
- advertising must be clearly recognisable as such. The FSMA takes a very broad view of what constitutes 'advertising'. In practice, we often see documents which international clients consider to be 'information memorandums' qualified as 'advertising';
- advertising material must mention the word 'advertisement' in a prominent manner;
- information (whether included in advertisements or in other documentation) may not be inaccurate or misleading. This requirement in practice often impacts yield predictions or minimizations of risk etc., which we sometimes see in international documentation.
The FSMA guidance in this respect also lists specific (and even more stringent) requirements in case of distribution of structured products. Compliance is a tricky balance to strike, as the documentation is not subject to a mandatory pre-filing with the FSMA, so the assessment (and responsibility) for compliance with the above lies with the issuer.
5 Consumer protection rules
What? – Consumer protection rules (incl. prohibited terms and prohibited products) have an impact on mechanics of products and/or possibility to offer certain products to Belgian consumers/retail clients.
Relevant to whom? – Issuers of investment instruments to Belgian consumers or retail clients. Especially (but not solely) impacts structured and/or leveraged products.
- general Belgian consumer protection rules as
set out in the Code of Economic Law (and in particular a list of
prohibited 'unfair clauses') apply: the interpretation of
these general consumer protection rules can be surprisingly strict
when applied to financial products. The application of these rules
often comes unexpected and might have a large impact on issuance or
distribution of the product in Belgium.9
In particular restrictions on unilateral amendments and early termination rights may result in substantial amendments to the mechanics of a (structured) product, or de facto render it impossible for the issuer to issue the instrument in a 'workable' manner to Belgian consumers.
- a number of 'blue sky' regimes impact
the issue of certain products: these especially (but not solely)
impact structured and/or leveraged products.
In particular, (i) restrictions on distribution to consumers of, amongst others OTC derivative contracts with leverage (eg. binary options, certain spot contracts, CFDs, etc.) via electronic trading systems10 and (ii) a ('soft-law') moratorium on the distribution of particularly complex structured financial to retail investors11, may simply render it impossible to offer the product as intended.
Although there are workarounds available to some of these restrictions, it is worth considering these early in the process to avoid surprises later on.
1 Regulation (EU) 2017/1129 of the European Parliament and of the Council of 14 June 2017 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market, and repealing Directive 2003/71/EC
2 See art. 1(3) of the Prospectus Regulation and article 3(2) of the Prospectus Regulation.
3 This is assuming that there is no admission to MTFs, Euronext Growth, Euronext Access or a regulated market. For reference, in case of a public offer admitted to Euronext Growth or Euronext Access, the threshold is at 8 million EUR, if listed on a regulated market a prospectus must be issued either way, and if admitted directly to Euronext Growth or Euronext Access, an information memorandum is sufficient either way.
4 Royal Decree of 23 September 2018 (Koninklijk besluit van 23 September 2018 over de publicatie van een informatienota bij een aanbieding aan het publiek of een toelating tot de verhandeling op een MTF en houdende diverse financiële bepalingen)
5 Art. 1 Transversal Royal Decree.
6 FSMA communication FSMA_2021_09 dd.01/04/2021, Q&A on the requirements applicable to advertisements for investment instruments when they are offered to the public, admitted to trading or distributed to retail clients.
7 On the basis of article 9, §1/1 of the Transversal Royal Decree, the FSMA applies a.o. article 22, paragraphs 2 to 5 of the Prospectus Regulation. Furthermore, the FSMA also applies the liability rules, provisions on the supervision by the FSMA and the criminal rules to such issues.
8 Except regarding approval of a prospectus by a competent authority, for which it must be specified that such approval is not an commendation.
9 See Book VI (Market practices and consumer protection) of the Belgian Code on Economic Law. In this respect, see also the Position FSMA_2017_04 of 30/01/2017 of the FSMA on the application of the Belgian rules on unfair contract terms to some clauses as part of the offer of investment instruments (available on https://www.fsma.be/sites/default/files/legacy/sitecore/media%20library/Files/fsmafiles/circ/en/2017/fsma_2017_04_2.pdf)
10 See FSMA Regulation governing the distribution of certain derivative financial instruments (binary options, CFDs, etc.). FAQ available on https://www.fsma.be/en/faq/fsma-regulation-governing-distribution-certain-derivative-financial-instruments-binary-options.
11 See Communication FSMA 2011_02 of 20/06/2011 on the moratorium on the distribution of particularly complex structured products (available on Refence can in particular be made to restrictions on distribution to consumers of, amongst others OTC derivative contracts with leverage via electronic trading systems and a ('soft-law') moratorium on the distribution of certain financial products to retail investors) (available on https://www.fsma.be/sites/default/files/legacy/sitecore/media%20library/Files/fsmafiles/press/2011/nipic/en/fsma_2011_02.pdf)
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.