The Autorité des Marchés Financiers (AMF) has published a recommendation governing the distribution of actively managed certificates (AMCs) to retail clients

Context

AMCs are structured debt securities (or equivalent financial securities issued on the basis of foreign rights) whose performance depends on an underlying (basket or index) the composition of which can be modified (‘rebalanced’) in a discretionary manner during the life of the financial instrument, without it being necessary to obtain the agreement of the end investors. They are not subject to all the protection mechanisms from which collective investment schemes benefit (presence of and control by a depositary, risk division rules, etc.).

The distribution of AMCs to retail clients has increased in recent years in the context of transactions exempt from the obligation to publish a prospectus. 

The AMF conducted a study between July 2023 and March 2024 of a certain number of professionals involved with these financial instruments (issuers, intermediary distributors and final distributors). This brought to light deficiencies in implementing the applicable regulatory requirements and a lack of knowledge of the AMF doctrine on the marketing of complex financial instruments, even though these financial instruments are highly complex.

Content

Recommendation DOC-2024-06 published by the AMF first draws the attention of investment services providers and financial investment advisors to certain regulatory requirements applicable to the distribution of AMCs (notably with regard to product governance, the information provided to clients – including about costs and charges –, verification of their level of knowledge and experience, and the applicability of AMF Position DOC-2010-05). In addition, the AMF uses this document to issue recommendations designed to better protect investors. These cover, in particular: establishing target markets for product governance, the methodology for estimating 'rebalancing costs', providing information to clients regularly and the recommended authorisations for the persons who determine the composition of the underlying.

This document concerns the distribution of AMCs to retail clients, in the context of the provision of a service of:

• investment advice;
• portfolio management on behalf of third parties (discretionary management); and/or
• execution (reception and transmission of orders on behalf of third parties, and execution of orders on behalf of third parties);

whether this distribution takes place at the initiative of the professional or at the client's own initiative.