BELGIUM: FSMA Expects Industry to Improve the Quality of Key Information Documents Provided to Retail Investors

Friday June 18 2021

The Financial Services and Markets Authority (FSMA) has examined the key information documents made available to Belgian retail clients who purchase insurance-based investment products or structured products. The objective was to determine whether these documents present a sufficient level of quality to allow customers to clearly understand the characteristics of these products. Following its findings, the FSMA expects the sector to improve in particular the clarity and readability of the information to be provided.

The FSMA has found that statements such as “internal investment fund, separate management, conditional coupon barrier or quanto participation” often appear in key information documents (KIDs) made available to Belgian retail clients, however, generally do not mean much to a large majority of the population.

A KID is a document that must be established by the product initiator in accordance with European regulations. It contains the essential information about a financial product. The purpose of such a document is to help investors make an informed investment decision and to facilitate comparison between products. In this sense, the KID is a useful document.

The FSMA carried out a quality control of a representative sample of KIDs for insurance-based investment products and structured products.

After having made individual contact with the originators audited in the past, the FSMA now wishes to communicate to the financial sector the most important and frequently encountered findings and remarks during this examination.

The examination shows that the KIDs do not always reach a sufficient level of quality and do not always provide sufficiently clear information on the characteristics and risks of the financial product. The language used in these documents is often too technical and difficult to understand. In addition, the fonts used are sometimes very small, which makes it difficult to read. However, clients should be able to understand KID without using a magnifying glass and financial dictionary.

Compliance with the objectives pursued by the regulations therefore remains a challenge for the sector. The FSMA expects a continuous effort from the initiators, who must provide clients with clear and understandable documents. It therefore calls on them to pay more attention to the quality of their KIDs and to improve their clarity and comprehensibility, in order to enable retail investors to make an informed investment decision. To this end, it publishes a Feedback Statement which sets out the main conclusions of its audit.

The FSMA will continue to carefully examine the KIDs notified to it in the future. In this context, it will attach particular importance to respecting the points of attention formulated in this Feedback Statement. If the FSMA still finds breaches of the provisions of the PRIIPs regulation, it will take the appropriate measures. The FSMA will focus its enforcement action on shortcomings which directly undermine the objectives pursued by the European legislator, namely to enable investors to compare products and make an informed decision. In the opinion of the FSMA, an illegible or incomprehensible KID, in particular as regards the functioning of the product and the risks associated with it, is clearly in contradiction with these objectives.

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