Belgian trade body questions Twin Peaks II legislation

25 Jun 2013

New draft legislation to increase the protection of consumers of financial products and

services in Belgium is not in the interest of its members, according to the Belgian association

of independent banking and insurance intermediaries (BZB).

In a recent report, BZB said that the Twin Peaks II legislation which was recently submitted

to Parliament also increases the power of the Belgian Financial Services and Markets

Authority (FSMA) to intervene, while the rule of conduct has been extended to include

insurance brokers.

"The legislation clashes several times with the interests of our members," said Daniel

Nicolaes (pictured), chair of the BZB, who claims that the sector has not been consulted

about the drastic measurements.

One of the main changes proposed is to increase the efficiency of the regulation by giving the

FSMA the power not only to ban the distribution of financial products to retail clients - but

also to hand out possible fines. "What we are missing here is the reinforcement of checking

investment insurance products prior to issuance as announced in the coalition agreement,"

Nicolaes told SRP. "It is important that the issuer can be held responsible."

Nicolaes also said that independent financial advisers must be able to rely on the products

which are distributed and cannot possibly screen the soundness of the products themselves.

"It is of the utmost importance that the products which are marketed for retail clients are

screened in advance or assessed."

Another proposed change is to implement 'essential product knowledge' as an explicit

requirement for everyone who is in contact with the public - both independent advisers and

intermediaries linked to a financial institution.

When it comes to investment, products advisers are expected to have an understanding about

the yield (fixed or variable) and the risk of capital loss, as well as the legal nature of the

product which can be important when assessing the counterparty risk. Whether or not

advisers comply with the rule could be monitored by, for example, mystery shopping.

The requirement of essential product knowledge is subjective, according to Nicolaes. "How

the FSMA is going to determine violations is not clear at all," he said. The BZB wonders

which criteria will need to be assessed in order to confirm whether an adviser has the

necessary product knowledge; and believes that checking this by mystery shopping remains

subjective. "This creates enormous legal uncertainty amongst intermediaries."

Additionally, the policy is also linked to a civil sanction. After all, violation of this policy

also leads to the presumption that a causal link exists between the breach and the investment

measure in question. "The liability of the intermediary will be aggravated enormously," he

added.

The violation of this policy can be invoked for up to five years from the day that the

consumer was given knowledge of the damage or the aggravation of it. "Such a subjective

rule of conduct with such grave consequences makes the profession of independent advisers

very precarious," said Nicolaes. "After all, how can [advisers] prove after several years that at

the time the product was sold they had the required knowledge about the product concerned?"

However, the BZB said that certain knowledge about investment products in general may be

required depending on the products sold. According to Nicolaes, product knowledge can by

gained via exams or courses which also provide legal certainty to advisers and companies.

"This can be done in the same way as we do now with the anti-money laundering training

which is required for certain persons," he said.

The twin peaks model was implemented in April 2011 and is intended to provide a structure

for the two major objectives of the supervision of the financial sector in Belgium. The first

objective is to maintain the macro- and microeconomic stability of the financial system which

will be the responsibility of the National Bank of Belgium. The second object is to

ensure that market processes are equitable and transparent; that relationships between market

participants are appropriate; and that clients are treated honestly, fairly and professionally

(notably from the perspective of rules of conduct), for which the FSMA will be responsible.

BZB represents the interests of independent banking and insurance intermediaries and has

more than 1,350 members who are registered with the FSMA as bank and/or insurance

intermediaries.

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