Decree-Law No. 211-A/2008, of 3rd November in Article 2 laid down specific disclosure duties for complex financial products, defined as ‘financial instruments that, despite adopting the legal status of an existing financial instrument, have characteristics that are not directly identifiable with said instrument owing to being linked to other instruments the performance of which totally or partially depends on its yield’. On the other hand, paragraph 6 of said Article makes reference to: ‘complex financial products are deemed to be, namely, Structured Savings Collection Instruments, also known as ICAE’.
This legislation stipulates that ‘advertisements on complex financial products are subject to approval by the authority responsible for the supervision of the instrument in question, without prejudice to the implementation of the Advertising Code’ and furthermore that, until approval of the specific law on the issue and marketing of complex financial products, ‘the authorities responsible for supervising the complex financial products regulate the duties of disclosure and transparency that the advertisements and information prospectus concerning said instruments should comply with, and also the format for monitoring the carrying out of said duties’.
Within this context, the Joint Understanding by the BdP (Banco de Portugal) and CMVM (Comissão do Mercado de Valores Mobiliários) seeks to clarify the demarcation of powers in supervising the marketing of complex financial products, as outlined in Decree-Law No. 211-A/2008, of 3rd November.
I. Types of Financial Products
For the purpose of this understanding, the types are as follows:
1. Deposits
Irrespective of the manner in calculating the yield, deposits are savings investments that always have to guarantee the refund of the entire amount invested. The capital is guaranteed by the balance sheet of the credit institution and not, or not only, by any technique hedging risk based on derivatives, for example. The name ‘deposit’ is reserved for products that have said characteristics.
There may be three categories of deposits:
a) Simple Deposits – deposits with fixed rate or variable rate, in the latter indexed in a simple manner to the money market indexing (e.g. Euribor);
b) Indexed Deposits – bank deposits the characteristics of which differs from a simple deposit by the yield being totally or partially linked to the performance of other instruments or financial variables (such as, for example, a share or basket of shares, an index or basket of share indices, an index or basket of commodity indices, etc). Also included here are the deposits wherein the respective yield is linked to money market indexing when same are not carried out in a simple manner;
c) Dual Deposits – products that result from the joint marketing of two or more simple and /or indexed deposits.
2. Investments in Financial Instruments
For the purpose of this Understanding, investments in financial instruments (deemed here as financial instruments within the meaning of MiFID) include the following:
a) Direct exposure to a financial instrument by means of marketing, subscription or acquisition of one or more simple or complex financial instruments;
b) Indirect exposure to the benefits and risks of said instruments by submitting the refundable funds to a credit institution, the yield of which is indexed to indices or any financial instruments, without the whole capital being fully guaranteed;
c) Direct or indirect exposure to one or more financial instruments through the use of joint marketing of more than one financial product even if one is a deposit.
The name ‘deposit’ is not allowed to be used for this type of investment.
II. Demarcation of Powers between the CMVM and BdP
1. In accordance with the general rules applicable that establishes the powers, the CMVM and BdP deem that it is incumbent on:
a) the BdP to supervise the financial products referred to in I.1;
b) the CMVM to supervise the financial products referred to in I.2.
2. There shall be distribution of powers which underlies the provisions of Article 2 Decree-Law No. 211-A/2008, of 3rd November, when the financial products referred to in point I herein adopts the characteristics of complex financial products pursuant to paragraph 1 of said rule.
3. The products referred to in I.1./b) and /c) and I.2./b) and /c) are complex financial products.
III. Regulation of Complex Financial Products
1. In the case of complex financial products subject to supervision by the BdP, the disclosure duties for marketing are laid down in Notice No. 6/2002 and advertising in Notice No. 10/2008.
2. In the case of complex financial products subject to supervision by the CMVM, the disclosure duties for marketing are laid down in CMVM Regulation No. 8/2007 and Articles 7, 121 and 366/2 and /3 Securities Code. A Paper on the draft of a Regulation on the Information and Advertising of Complex Financial Products subject to Supervision by the CMVM has been submitted for consultation.