The FSMA surprised many in May 2015 by introducing a method in Belgium that was already in use in the United Kingdom and the Netherlands to combat a practice deemed contrary to the MiFID rules. Since 1 November 2007, credit institutions have been offering "bermudan swaps" to SMEs which do not qualify as professional clients within the meaning of MiFID. In essence, these instruments, designed to hedge the risk of increased interest rates, include an option allowing the credit institution to unilaterally put an end to the transaction, while the client has no such option.
As a result of the unconventional measures taken by the central banks to tackle the financial crisis by injecting massive amounts of cash, interest rates reached an historical low. While these artificially low interest rates persisted, the swaps hedging a possible increase have led to significant payments being made over the years by SMEs who entered into such interest rate swaps.
In addition to criticising the imbalanced nature of the option in favour of the credit institutions only, the FSMA criticised the credit institutions for failing to perform the necessary due diligence to identify their clients' capacities and needs and to provide them with proper information.
If the FSMA had stopped its action there, it would have been welcomed as a good-order measure carried out in the course of its responsibilities regarding the protection of consumers of financial products, as a warning to the industry.
However, the FSMA did not leave things there. It has published its "judgment" in abstracto and imposed concrete solutions it deems necessary to rectify the wrongdoing. All defaulting situations in line with the pattern described by the FSMA are required to undergo "remedial action" in order to be settled by individual arrangements (compensation described as a "commercial gesture") within 4 months. This has, of course, caused some restlessness in the industry, and although the 4-month period is almost due to expire, many situations still have not been remedied. Whereas the judicial case law seemed rather supportive of the credit institutions, the FSMA's recent stance seems to tip the scales in favour of consumers, providing litigants with new arguments and the authority of the supervisory body.
This once again illustrates the compliance officer's key role in monitoring "fairness" and "transparency" in business, two concepts that have been used so often in these troubled times of artificially low interest rates.