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Article 20

Article 20 - Criteria and factors for the purposes of EBA temporary product intervention powers (Article 41(2) of Regulation (EU) No 600/2014)

Article 20

Criteria and factors for the purposes of EBA temporary product intervention powers

(Article 41(2) of Regulation (EU) No 600/2014)

1.   For the purposes of Article 41(2)(a) of Regulation (EU) No 600/2014, EBA shall assess the relevance of all factors and criteria listed in paragraph 2, and take into consideration all relevant factors and criteria in determining when the marketing, distribution or sale of certain structured deposits or structured deposits with certain specified features or a type of financial activity or practice creates a significant investor protection concern or a threat to the orderly functioning and integrity of financial markets or to the stability of the whole or part of the financial system in the Union.

For the purposes of the first subparagraph, EBA may determine the existence of a significant investor protection concern or a threat to the orderly functioning and integrity of financial markets or to the stability of the whole or part of the financial system of the Union based on one or more of those factors and criteria.

2.   The factors and criteria to be assessed by EBA to determine whether there is a significant investor protection concern or a threat to the orderly functioning and integrity of financial markets or to the stability of the whole or part of the financial system in the Union shall be the following:

(a)

the degree of complexity of a structured deposit or type of financial activity or practice in relation to the type of clients, as assessed in accordance with point (c), involved in the financial activity, or financial practice, taking into account, in particular:

—

the type of the underlying or reference assets and the degree of transparency of the underlying or reference assets;

—

the degree of transparency of costs and charges associated with the structured deposit, financial activity or financial practice and, in particular, the lack of transparency resulting from multiple layers of costs and charges;

—

the complexity of the performance calculation, taking into account in particular whether the return is dependent on the performance of one or more underlying or reference assets which are in turn affected by other factors or whether the return depends not only on the values of the underlying or reference assets at the initial and maturity or interest payment dates, but also on the values during the lifetime of the product;

—

the nature and scale of any risks;

—

whether the structured deposit or service is bundled with other products or services; or

—

the complexity of any terms and conditions;

(b)

the size of potential detrimental consequences, considering, in particular:

—

the notional value of an issuance of structured deposits;

—

the number of clients, investors or market participants involved;

—

the relative share of the product in investors' portfolios;

—

the probability, scale and nature of any detriment, including the amount of loss potentially suffered;

—

the anticipated duration of the detrimental consequences;

—

the volume of the issuance;

—

the number of institutions involved;

—

the growth of the market or sales;

—

the average amount invested by each client in the structured deposit; or

—

the coverage level defined in Directive 2014/49/EU of the European Parliament and of the Council (11);

(c)

the type of clients involved in a financial activity or financial practice or to whom a structured deposit is marketed or sold, taking into account, in particular:

—

whether the client is a retail client, a professional client or an eligible counterparty;

—

clients' skills and abilities, including level of education, experience with similar financial products or selling practices;

—

clients' economic situation, including income, wealth;

—

clients' core financial objectives, including pension saving, home ownership financing;

—

whether the product or service is being sold to clients outside the intended target market or where the target market has not been adequately identified; or

—

the eligibility for coverage by a deposit guarantee scheme;

(d)

the degree of transparency of the structured deposit or type of financial activity or financial practice, taking into account, in particular:

—

the type and transparency of the underlying;

—

any hidden costs and charges;

—

the use of techniques drawing clients' attention but not necessarily reflecting the suitability or overall quality of the product or service;

—

the type and transparency of risks;

—

the use of product names or of terminology or other information that is misleading by implying product features that do not exist; or

—

whether the identity of deposit takers which might be responsible for the client's deposit, is disclosed;

(e)

the particular features or components of the structured deposit or financial activity or financial practice, including any embedded leverage, taking into account, in particular:

—

the leverage inherent in the product;

—

the leverage due to financing; or

—

the fact that the value of any underlying is no longer available or reliable;

(f)

the existence and degree of disparity between the expected return or profit for investors and the risk of loss in relation to the structured deposit, financial activity or financial practice, taking into account, in particular:

—

the structuring costs of such structured deposits, activity or practice and other costs;

—

the disparity in relation to the issuer's risk retained by the issuer; or

—

the risk-return profile;

(g)

the costs of and ease with which investors are able to exit a structured deposit, in particular considering:

—

the fact that early withdrawal is not allowed; or

—

any other barriers to exit;

(h)

the pricing and associated costs of the structured deposit, financial activity or financial practice, taking into account, in particular:

—

the use of hidden or secondary charges; or

—

charges that do not reflect the level of service provided;

(i)

the degree of innovation of a structured deposit, a financial activity or a financial practice, taking into account, in particular:

—

the degree of innovation related to the structure of the structured deposit, financial activity or financial practice, including embedding and triggering;

—

the degree of innovation relating to the distribution model or length of the intermediation chain;

—

the extent of innovation diffusion, including whether the structured deposit, financial activity or financial practice is innovative for particular categories of clients;

—

innovation involving leverage;

—

the lack of transparency of the underlying; or

—

the past experience of the market with similar structured deposits or selling practices;

(j)

the selling practices associated with the structured deposit, taking into account, in particular:

—

the communication and distribution channels used;

—

the information, marketing or other promotional material associated with the investment;

—

the assumed investment purposes; or

—

whether the decision to buy is a secondary or tertiary following an earlier purchase;

(k)

the financial and business situation of the issuer of a structured deposit, taking into account, in particular:

—

the financial situation of the issuer or any guarantor; or

—

the transparency of the business situation of the issuer or guarantor;

(l)

whether there is insufficient or unreliable information about a structured deposit, provided either by the manufacturer or the distributors, to enable market participants at whom it is targeted to make an informed decision, taking into account the nature and type of the structured deposit;

(m)

whether the structured deposit, the financial activity or the financial practice poses a high risk to the performance of transactions entered into by participants or investors in the relevant market;

(n)

whether the structured deposit, the financial activity or the financial practice would leave the Union economy vulnerable to risks;

(o)

whether the characteristics of a structured deposit make it particularly susceptible to being used for the purposes of financial crime and, in particular whether those characteristics could potentially encourage the use of structured deposits for:

—

any fraud or dishonesty;

—

misconduct in, or misuse of information, in relation to a financial market;

—

handling the proceeds of crime;

—

the financing of terrorism; or

—

facilitating money laundering;

(p)

whether the financial activity or financial practice poses a particularly high risk to the resilience or smooth operation of markets and their infrastructure;

(q)

whether a structured deposit, a financial activity or a financial practice could lead to a significant and artificial disparity between prices of a derivative and those in the underlying market;

(r)

whether the structured deposit, a financial activity or a financial practice poses a high risk of disruption to financial institutions deemed to be important to the financial system of the Union, in particular considering the hedging strategy pursued by financial institutions in relation to the issuance of the structured deposit, including the mispricing of the capital guarantee at maturity or the reputational risks posed by the structured deposit or practice or activity to the financial institutions;

(s)

the relevance of the distribution of structured deposit as a funding source for the financial institution;

(t)

whether a structured deposit, financial practice or financial activity poses particular risks to the market or payment systems infrastructure; or

(u)

whether a structured deposit or financial practice or financial activity could threaten investors' confidence in the financial system.

(11)  Directive 2014/49/EU of the European Parliament and of the Council of 16 April 2014 on deposit guarantee schemes (OJ L 173, 12.6.2014, p. 149).