- A system of traffic lights or numbers will alert to the risk of deposits, bonds, stocks, insurance and pension plans
- The client must receive the information in the advertising of the product and prior to marketing
The Ministry of Economy and Competitiveness has approved a ministerial order on information and classification of financial products, the purpose of which is to ensure that private investors are aware of the risks they assume with the purchase of a certain financial asset. The order establishes a classification of these products using a scale of six colors, known as traffic lights, or numbers from 1 to 6. The information must be delivered to the customer prior to the commercialization of banking, insurance, bond products, individual and associated stocks or pension funds. Aspects such as whether or not the invested capital is guaranteed, the term in which the principal is returned and the credit quality of the product or, failing that, that of the issuing entity, will be taken into account.
The measure derives from a project of the National Securities Market Commission, submitted for consultation just over a year ago. The report of the Subcommittee of Congress on transparency in the information of financial and mortgage instruments of credit institutions has also been taken into account. This report recommended the adoption of a classification of products by risk and complexity that could be represented through colors.
The information obligations contained in the ministerial order affect investment services companies, credit institutions, credit financial establishments, insurance entities and pension fund management entities. They are also applicable to the previous entities (except the EFcs or financial credit institutions for not having a community passport) that are foreign and provide investment services or market, in Spanish territory, any of the financial products provided in the ministerial order, through a branch or in the free provision of services.
The products on which these information obligations are reinforced are the financial instruments included in article 2 of the Securities Market Law, which include stocks, bonds and obligations; bank deposits including, among others, demand, savings and term deposits; life insurance products for savings purposes, including insured pension plans; and individual and associated pension plans.
Insurance and collective pension funds, the national and national public debt of the EU Member States and the PRIIPs products are excluded (packaged retail investment and insurance products which are those whose value is subject to fluctuations due to their exposure to certain reference values or the evolution of underlying assets, since these products must have a harmonized information document at the European Union level as of December 31, 2016 ).
Risk warnings will be directed primarily at non-professional clients. A classification and information system for financial products is established for this purpose, in order to guarantee that the client understands the risks he assumes in contracting each one of them and can choose the products that best suit his needs. The marketing entities will be obliged to include in their advertising communications and to deliver, prior to marketing, and together with the other information obligations, a series of additional indicators and alerts established in this order:
- A risk indicator identified with one color among a range of six colors that tries to easily and visually summarize the risk assumed based on aspects such as whether or not the capital of the product is guaranteed, the period in which it is returned This principal and the credit quality of the product or, failing that, that of the issuing entity. However, entities may substitute the color figure for the numerical indication of the class to which the financial product belongs in the numerator part of the fraction, the denominator always remaining constant in number 6.
- In addition, when the financial product marketed by the entities is a pension plan, the entities will provide, in replacement of the risk indicator, another one prepared in accordance with the provisions of CNMV Circular 2/2013 on the synthetic risk indicator for collective investment institutions. This indicator consists of a figure on a scale of 1 to 7 based on the level of historical volatility of the collective investment institution. Thus, pension plans will have the same classification system as companies and investment funds.
- They may also set an alert on possible limitations regarding liquidity and the risks of advance sale when the product is especially illiquid, accompanied by a figure or two figures of a padlock, depending on the degree of illiquidity.
- Finally, there will be an alert indicating that it is a complex and difficult to understand product accompanied by two exclamation points.