The French AMF has issued a public warning to investors who may, in the light of current low interest rates, be tempted to invest in unregulated sectors. Highlighting an increase in the number of parties offering favourable investment returns for non-financial products as diverse as letters and manuscripts, works of art, solar panels, stamps, wine and diamonds, the AMF reminds investors that such unregulated products are not subject to the consumer protection rules governing the sale of financial products, that the contractual documentation is not subject to AMF review, and that if problems subsequently arise, rights of redress are likely to be limited.
The AMF recommends that investors take the following basic precautions before investing, noting that these same steps are applicable to both financial products and unregulated products:
- No sales patter should make you lose sight of the fact that there is no high yield without high risk. Any product that promises a higher yield than official monetary interest rates will logically carry significant risk (investors are referred to the “taux du livret A“, the interest rate for basic savings accounts calculated by the Banque de France in January and July each year – currently set at 2.25%).
- The information provided by your broker should be clear and understandable: if you adopt the motto “don’t invest in what you don’t fully understand”, you will avoid disappointment.
- Obtain a basic minimum of information about the companies or intermediaries who are offering the product (identity and legal status, country of residence or establishment, liability, organisational rules, etc.).
- Ask yourself how, and by whom, the value (purchase or sale price) of the proposed product is set.
- Consider specifically how or by what means the product can be resold.
It is interesting that the AMF is using the opportunity provided by risks generated outside the regulated sector to encourage consumers to consider their own interests and take responsible actions to help themselves.
The FSA’s thoughtful discussion paper on Consumer Responsibility, published in 2008, had sought to provoke a debate as to how best to help and encourage consumers to consider their own interests more effectively in their decision-making, the consequences of them failing to do so and the drivers and obstructions to achieving a ‘better’ world for the retail market in financial services. Perhaps because the paper was published at the height of the financial crisis, a year after the run on Northern Rock and three months after the collapse of Lehman Brothers, the debate it engendered was heated.
No broad consensus was achieved amongst respondents and stakeholders on what consumers’ high-level responsibilities might be at common law, and consumer representatives argued passionately that consumers do not and should not have “responsibilities” (or at least not in the sense that regulated firms have regulatory responsibilities). In its feedback statement in 2009, the FSA resolved to take forward the positive dimensions of this consumer responsibility work through its financial capability agenda and wider consumer communications strategy – which is essentially what the AMF is doing in this latest release.