The National Securities Market Commission (CNMV) has developed a universal system of classification of financial instruments with a color scale of five levels of risk aimed at retail investors, in order to improve information before hiring.
In a statement, the supervisor has informed that it has decided to inquire the various participants in the market to develop a Circular regulating this ‘light’.
The system claims that a “look” the investor is able to understand the level of risk to be undertaken and complexity of the securities. The color scale goes from green to red.
This measure, which was one of the objectives listed by the CNMV in its Business Plan 2014 had been requested by the Ombudsman and the Congressional Subcommittee for product transparency financial .
In addition, investors clear information on the levels of liquidity and complexity of the products that are available to hire are provided. To do this, the color system will be accompanied by some icons (padlocks and cheers) with a mention of the possible limitations on liquidity the product that is going to hire or with respect to the particular complexity of the instrument.
The proposed criteria for the classification of different products take into account the risk of no recovery at maturity, the creditworthiness of the issuer, maturity, product characteristics, as well as currency in which it is named. Thus, the categories were ‘Class A’, ‘Class B’, ‘Class C’, ‘Class D’ and ‘E-Class’.
The system will display a graphic and iconic, in order to facilitate understanding, that entities should always included in all contractual information and advertising of financial products .
In particular, progressive color scale is based on a pyramid chart that riskier instruments are at the bottom , as in scale efficiency energy. Below the graph will appear, where appropriate, the warnings about liquidity or complexity.
In addition, the CNMV poses strengthen investor protection measures in the marketing of products considered particularly complex and that are not suitable for retail , such as contingent convertible instruments (‘ coconuts’) and ‘swaps’, among others.
In this regard, proposes to entities when providing investment advice outside, carry the following warning: “Warning of the National Securities Market Commission (CNMV): This operation refers XXX a particularly complex financial instrument., the CNMV considers inadequate acquisition by non-professional investors. ”
In addition, entities must obtain the signature of the previous text by the client, will also need to write your own handwriting the following expression: “Product not suitable for non-professional “investors.
The CNMV subjected to public consultation document explaining the project until 30 September before these measures become circulate.
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