French regulator the Authorité des Marchés Financiers has issued additional disclosure requirements for structured investments' advertising material, even if the products have already been approved in other E.U. jurisdictions. The regulator says it is looking out for French investors, who may make decisions based on advertising material rather than the full prospectus. The announcement, however, has the market in an uproar because sales officials had been hoping they could distribute products with only the disclosures required under the E.U.'s Prospectus Directive.
"We want to be sure that the marketing materials reflect the main risks attached to the product," said an official at the AMF. Dealers are concerned this requirement--which includes specifying capital-protection levels and the risk characteristics of the product--could put off some investors. France's structured note business last year saw an estimated EUR15 billion-worth of derivative-based investment notes issued.
In particular, French investors have traditionally invested in more exotic, higher-margin products and although these will be allowed in some E.U. countries without additional disclosures in the advertising material, this will not be the case in France. The regulator will allow issuers to opt out of the advertising requirements, but they must explain why they are not complying and sales officials say this is an extra burden on compliance and legal officers. "It's a no-win situation," said one salesman.
The AMF notes in its announcement that the rules are in fact a cut-down version of previous marketing requirements, known as the General Principles relating to warrants and complex bonds. But Hervé Ekué, partner at Allen & Overy in Paris, added the regulations have taken the market by surprise, because at a consultation meeting in the fall, market participants believed they had persuaded the AMF that the General Principles would be entirely redundant after the Prospectus Directive was in place.
Sales officials at a handful of firms told DW structured funds and notes they had planned to sell in France this month have now been put on hold, while additional disclosures are added to the marketing material. Several lawyers agreed there's been a disruption to the usual flow of structures issued in France, but one noted the AMF's requirements are now similar to marketing rules for financial products in other jurisdictions, such as the U.K.
