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FR - Classification of financial instruments as “simple” or “complex”

18/01/2018

On 31 January 2018, the AMF amended its rules to propose a more simple and readable methodology regarding the appreciation of financial contracts and financial securities, defining a financial contract as “simple” or “complex” in terms of the organisation and to the human resources of the management company.

On 31 January 2018, the AMF amended its rules to propose a more simple and readable methodology regarding the appreciation of financial contracts and financial securities, defining a financial contract as “simple” or “complex” in terms of the organisation and to the human resources of the management company.

To conduct this analysis, the AMF proposes an two-fold approach. First, the SGP must see if the underlying asset can be qualified as “non-traditional” (i.e. not easily observable on the market). Non-traditional underlying assets include volatility, dividends or even raw materials.

Secondly, the SGP must also look at the complexity of the securitisation method and the risk profile of the instrument. This second filter categorises complex instruments as instruments with a complicated or non-standardised performance function, such as contingent convertibles (CoCos), disaster obligations (Cat bonds), certificates, or EMTN automatically redeemable by the issuer (autocall).

A list of financial contracts and financial securities with a “simple” or “complex” financial contract is published in the annex to the AMF recommendation (DOC-2012-19).

The SGP have until 28 February 2019 to implement compliance with the new rules.

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