Advisory services for securities have been a topic of discussion and concern for local regulators and supervisors, as well as for local and foreign market participants, because of the breadth of the existing applicable law and the various legal restrictions involved. Nowadays, advisory services for securities fall under one of the following descriptions: (i) a securities' intermediation activity, (ii) a duty requested from local securities' intermediaries; or, (iii) an activity not regulated by local regulations (which only applies for some activities undertaken within M&A processes and similar investment banking transactions).
With the purpose of updating the rules applicable to securities advisory services, the Ministry of Finance is asking for comment on a draft of decree incorporating the most recent international standards on this matter. This is a robust project that intends to clarify the requirements, obligations and restrictions that a local financial entity may face whenever it advises clients regarding financial instruments or the execution of their rights.
The new regulation would expand the protection available to investors, requiring financial entities, among other things, carry out: (i) more thoughtful and tailor-made recommendations with respect to each investor, (ii) a full disclosure to clients of the conflicts of interest which they are exposed to in each case, (iii) appropriately tailored information provided to the client depending upon the complexity of the financial product concerned; and, (iv) the provision of adequate advice whenever the client also acts as the counterparty of the financial entity in the respective transaction.
Even though this new regulation will ensure an improved more competent advisory service to clients, there are still certain issues that need to be clarified. For example, under the proposed draft, it would seem that these duties and obligations would also apply to any advisory activity related to financial instruments that are not considered securities and that are not necessarily registered with the National Registry of Securities and Issuers (RNVE), as well as, to advisory services as regards foreign securities that are not listed in the local trading systems for foreign securities (Mila and MGC). This is a relevant matter, considering that an application of these rules to foreign financial instruments would imply the extra-territorial application of the law, which would be inconsistent with the prevailing legal regime for the distribution of foreign financial products.
|Carlos Fradique-Méndez||María Camila Ordóñez|
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