Financial planners in Belgium: Introduction of a new Regulatory Framework
By Inez De Meuleneere, Professional Support Lawyer, Allen & Overy LLP
By Willem Van de Wiele, Senior Associate, Allen & Overy LLP
As of November 2014, a new category of regulated financial institution is born in Belgium: the independent financial planner (the Independent Financial Planner). Furthermore, all financial planners now need to comply with a specific set of conduct of business rules.
The new regulations are a good illustration of the increased focus of the Belgian regulator on consumer protection.
What is financial planning?
“Advice on financial planning” is advising non-professional clients how to optimise their properties and possessions, namely the structure, the planning over time, the protection, the legal form and transfer thereof, on basis of the clients’ needs and objectives. It does not include the provision of investment services or any advice related to transactions in financial instruments.
Who do the licencing requirements apply to?
Advice on financial planning is not a new activity and has been undertaken by a broad range of players, some of which are already regulated undertakings, like credit institutions, investment companies, pension funds companies, insurance companies, management companies (UCITS or AIF) and insurance or bank intermediaries.
Others, who did not engage in any regulated activity, had escaped any supervision until now. While financial planners do not hold client assets or execute client instructions, the Belgian legislator considered the extension of its supervisory powers to include Independent Financial Planners important, because they are able to influence important decisions that their clients make regarding their property and possessions.
The Belgian Law of 25 April and its implementing Royal Decree of 8 July 2014 (the Law) require natural persons or entities who undertake the activity of financial planning on the Belgian territory for non-professional clients, on a usual professional basis, be it on a full-time basis or complementary or additional to another activity to submit to regulatory access and supervision and as such need to be licensed.
A series of institutions or activities are exempted from this licencing requirement: (i) the ECB and the Belgian National Bank; (ii) financial planners who work for one family or entities which provide financial planning only to associated companies within the same group; (iii) persons who give advice on financial planning in the course of the exercise of another professional business, provided that the latter is regulated by a deontological code.
Conditions for the exercise of the activity of Independent Financial Planner
Persons or entities who undertake a regulated financial activity in Belgium, may also, without the additional licencing requirement, give advice on financial planning, provided that their statutes do not prevent this.
Others must obtain a licence as an Independent Financial Planner with the Belgian Financial Services and Market Authority (the FSMA). In order to obtain this licence, applicants must:
- be a physical person or a commercial company;
- have its central administration located in Belgium;
- provide a three-year business plan;
- have an adequate organisation which fits with the kind, extent and complexity of its activities and the risks attached thereto (procedures to identify and manage potential conflicts of interests must be in place and internal control procedures must be set up to monitor compliance with the specific conduct of business rules);
- enter into an insurance policy covering the professional liability of the Independent Financial Planner.
If the applicant is a company, it must also:
- reveal the identity of the persons who have direct or indirect control over it as well as persons in charge of the effective management, who must be physical persons;
- have both a board of directors as well as persons in charge of the effective management of the company who must be physical persons, and these persons must at all times have the necessary professional standing and adequate expertise.
Independent Financial Planners will have to comply with these requirements at all times and must notify the FSMA of any material change in the conditions under which they have obtained their licence.
Independent Financial Planners, like the other regulated financial institutions, are subject to the Anti-Money-Laundering-regulatory framework.
Incompatible activities or transactions
Independent Financial Planners must refrain from activities or transactions which are considered as incompatible with their status as an independent and trusted advisor.
They are not allowed to provide investment advice or any other advice concerning transactions involving individual financial products, obtain custody of client monies or financial products, or obtain or hold a mandate on the bank accounts of their clients.
When exercising another professional activity Independent Financial Planners, including their directors, effective managers, associated entities and persons and staff, must as a general rule ensure that the other professional activity:
- does not create conflicts of interests;
- does not harm their reputation;
- is completely separated from their activity as a financial planner, both from an organisational and book-keeping perspective.
In addition to these general rules, some institutions or activities are considered by law as incompatible with that of an Independent Financial Planner: (i) regulated financial institution; (ii) a person or entity offering, for its own account or on behalf of a third party to subscribe to financial instruments or to buy such instruments; (iii) regulated payment institution; (iv) a person or an entity negotiating, for its own account or on behalf of a third party, over gold and other precious metals or currencies; (v) real estate brokers.
Cross border activity of Belgian Independent Financial Planners
Independent Financial Planners who would like to expand their activities into another state, possibly through a separate affiliate or a branch, must notify the FSMA beforehand. This notification must include information on the intended activities, their financial impact and the consequences thereof for the organisation of the Independent Financial Planner.
If the project entails negative consequences for the Independent Financial Planner, the FSMA may, in a reasoned decision, decide against its expansion.
Foreign companies active on the Belgian market
The activity of the provision of advice on financial planning has not been harmonised at the European level. This means that undertakings with the status of Independent Financial Planner cannot passport their services in another member state, be it through the establishment of a branch or through the free provision of services, without obtaining a licence from the local authorities.
Non-Belgium based companies, whether or not established in the EEA, that wish to conduct financial planning activities in Belgium must as a general rule establish a branch in Belgium. Moreover, those companies must have equivalent status in their home country as that of the Belgian Independent Financial Planner and on basis of which they may provide advice on financial planning. Before granting the licence to the Belgian branch, the FSMA liaises with the supervisory authority in the home country.
The cross-border exercise of the activity of financial planning by way of free movement of services will only be granted to institutions based in the EEA having a regulated or equivalent status in their home country and a passport for the activity of financial planning.
The preparatory works of the Law explain that this restriction on the free movement of services is based on the principle that the FSMA must be able to control whether a service provider complies with the conduct of business rules. In situations where one cannot rely on a supervisory authority in the home country, it is only by having a permanent branch in Belgium, where the required documentation can be checked, that will ensure that the FSMA can exert the necessary control.
Conduct of business rules
The Law submits financial planners to MiFID-like conduct of business rules irrespective of whether they are independent or not. Financial planners must as a general rule, act honestly, fairly and professionally in the best interest of their clients; and all information including marketing communications provided to clients or potential clients must be fair, clear and not misleading.
Specific attention is paid to the use of the “independence” label. Independent Financial Planners must clearly inform their clients or potential clients on the meaning and consequences thereof, namely that they (i) operate independently from issuing entities or regulated financial institutions and (ii) cannot accept remuneration, commission or other direct or indirect inducements from such entities or institutions. Further they must indicate that they (iii) cannot accept or hold monies or financial products on behalf of their clients, (iv) must refrain from providing investment advice and (v) must refuse any mandate on clients’ bank accounts.
Supervision by the FSMA and sanctioning powers
Under the Belgian Twin-Peaks Supervision framework, the appointment of the FSMA as supervisory regulator is logical given the fact that financial planners cannot accept or hold monies or financial products for their clients. Furthermore, the FSMA is, as a general rule, the competent authority for the supervision of the conduct of business rules.
Breaches of licencing requirements or of conduct of business rules give rise to a broad range of FSMA investigative powers and administrative sanctions, with which other regulated financial institutions are already familiar. Some breaches like the illegal exercise of the activity of an Independent Financial Planner or the unauthorised use of the “Independence” label, may even give rise to criminal prosecution and sanctions. Similarly, this applies in the situation in which one refuses to provide the FSMA with the requested information or documents necessary for its supervision on the correct application of this legislation.