Short Reads

Ban on advertisement of high-risk financial products to retail parties in the Netherlands

Ban on advertisement of high-risk financial products to retail parties in the Netherlands

Ban on advertisement of high-risk financial products to retail parties in the Netherlands

06.04.2017 NL law

Effective 1 July 2017, financial institutions are prohibited to promote financial products that are considered as "high-risk" by the Dutch regulator. The prohibition will apply to binary options, warrants, contingent convertibles issued by banks (CoCo's), contracts for difference, specialty derivative products known as "turbos", futures and payday loans (flitskredieten).

Background

Recent studies by the European Securities and Markets Authority, the European Banking Authority and several national regulators within the EU showed that high-risk financial products can be offered to retail investors. These financial products are considered high-risk because of their speculative and complex nature and are mostly offered and sold through online execution only platforms. These aspects expose retail investors with no experience in investing to the risks associated with investing in such financial products.

To prevent this risk, a new Article 56a will be included in the Dutch Market Conduct Supervision Decree (Besluit Gedragstoezicht financiële ondernemingen) prohibiting financial institutions from promoting several high-risk financial products as determined by the Dutch Authority for the Financial Markets (Autoriteit Financiële Markten, the "AFM"). The consultation period ended on 20 March 2017. Several market parties critically reviewed the new prohibition and state that the scope is too broad. The reactions can be found here.

Although these high-risk financial products do not constitute a large part of the financial market, the high risks associated with investing in them require the protection of retail investors. The AFM therefore considers this advertisement ban as an important instrument in its battle against parties offering high-risk financial products that the AFM considers undesirable for a retail audience. An example of this is the rejection of the licence of a party that offers binary options. The Trade and Industry Appeals Tribunal ruled that the AFM was not allowed to reject the licence simply because the AFM considers binary options undesirable for a retail audience. For a more detailed overview of this judgement, please see our previous newsletter here.

Practical implications of the advertisement ban

The advertisement ban will mean that financial institutions will no longer be able to promote binary options, warrants, contingent convertibles issued by banks (CoCo's), contracts for difference, specialty derivative products known as "turbos", futures and payday loans (flitskredieten). This prohibition will apply to all online and offline advertisements directed at retail investors in the Netherlands. The Dutch Financial Supervision Act (Wet op het financieel toezicht) defines an "advertisement" as any form of provision of information recommending a specific financial service or product. Whether an advertisement is directed at retail investors in the Netherlands must be determined according to the criteria developed by the European Court of Justice in the cases Pammer and Alpenhof.

No ban on the offering of high-risk financial products

The advertisement ban does not introduce a ban on giving advice on or offering these high-risk financial products to retail investors in the Netherlands. Also, the advertisement ban does not affect the obligation for financial institutions offering high-risk financial products to provide retail parties with the required key investor information. However, the advertisement ban requires that this key investor information must be of a factual nature and may not contain any recommendations, marketing language or attractive features. This requirement applies to both the content (text) and the layout of the key investor information.

It is expected that the advertisement ban will enter into force on 1 July 2017.

Team

Related news

14.10.2021 NL law
NFTs: New legal challenges on the horizon

Short Reads - Non-Fungible Tokens, widely known as NFTs, have recently gained much attention due to their role in the transfer of digital artworks. The market for NFTs grew from USD 13.5m in the first six months of 2020 to USD 2.5bn in the first half of 2021 and is still growing at an expansive rate. Notwithstanding their increasing popularity in the world of art, NFTs have many potential applications. In this blog Maciek Bednarski, Annemijn Witkam and Roderik Vrolijk explain what NFTs are and describe some of the legal challenges they will bring about.

Read more

11.10.2021 NL law
Vervolgonderzoek van de AFM naar incidentmeldingen door asset managers

Articles - Sinds de uitbraak van het coronavirus wordt ook in de financiële sector meer op afstand samengewerkt. Dat brengt specifieke risico’s met zich mee. De Autoriteit Financiële Markten (AFM) gaat daarom vervolgonderzoek doen naar het melden van incidenten door asset managers. De reden is het uitblijven van een stijging van het aantal incidentmeldingen ondanks herhaalde oproepen daartoe.

Read more

15.10.2021 NL law
BRRD II implementation in the Netherlands

Short Reads - Recently, the Dutch bill for the implementation of BRRD II (i.e. Directive (EU) 2014/59 establishing a framework for the recovery and resolution of credit institutions and investment firms, as amended by Directive (EU) 2019/879) in the Netherlands was submitted to Dutch Parliament, where it is currently under debate.

Read more