Belgium: The end of bond issues and structured notes for the public at large?


The Position presents a set of recommendations and interpretations as to the scope of the provisions relating to unfair terms, being part of the Book VI “Market practices and consumer protection” of the Code of Economic Law (the “CEL”) vis-à-vis the contractual relationship between issuers of investment instruments and investors (in their capacity as consumers in the meaning of the CEL). The consumer is construed as being any natural person who is acting for purposes which are outside his trade, industrial, craft or professional activity.

Since the publication of the Position, we have noted an abrupt slowdown, even a discontinuation, of all bond issues addressed to Belgian retail clients. Potential issuers and arranger banks are indeed facing strong opposition from the FSMA on the thorny question of whether certain clauses, hitherto commonly accepted, should be maintained.

The Position does not have any regulatory value as such but rather reflects the opinion of the FSMA. It therefore does not prejudice the interpretation power that can ultimately be exercised by the Belgian courts.

The scope of the Position encompasses all offers of investment instruments (public or non-public and with or without requirement of a prospectus) made to consumers in Belgium. Although the Position had been shaped following a problem mostly affecting structured notes, it applies mutatis mutandis to non-structured debt securities with right to payment of nominal value upon maturity (e.g. senior notes and plain vanilla bonds) as well as to investment instruments of undetermined duration (e.g. CFD, warrants, etc.).

Supervision by the FSMA will be firstly grounded on a blacklist itemizing all “absolute” unfair terms as per Article VI.83 of the CEL, with a dedicated focus on:

  • clauses allowing the issuer to adjust unilaterally essential features of the contract;
  • clauses allowing the issuer to terminate unilaterally a contract with a fixed duration, without providing for an indemnification for the consumer;
  • clauses allowing substitution of the issuer; and
  • the exclusion from recourse to force majeure which would result from certain events (e.g. tax events, increased cost of hedging, clean-up, stop loss, etc.).

Call and clean-up clauses typically exemplify the above in relation to unilateral termination by the issuer.

It will be secondly grounded on the general principle according to which a clause will be regarded as unfair as soon as it creates a patent unbalance between rights and obligations of the parties to the detriment of the consumer.

Any unfair term could result into its ban and nullity.