October 1, 2020

High performance? Structured deposit? Beware of financial euphemisms | Economy

High performance? Structured deposit? Beware of financial euphemisms | Economy

Things start to change in the financial world. The president of Renta4 Banco, Juan Carlos Ureta, recently referred to the confusing nature of the name of some financial products or expressions that may mislead the saver. An issue that is exacerbated by the scarce financial culture in Spain. Preferred participations, of such scandalous memory; high growth companies that really involve a very high risk or structured deposits that hide extremely complex instruments linked to financial derivatives, are some examples of those products that appear with a friendly, euphemistic name, which largely hides a high risk of losing money invested

Ureta puts in this classification of sweetened terms to fixed-income funds when – and now it is the case – they are losing money as a result of the rise of rates in the secondary markets that causes the loss of the value of the bond, although, yes, have in most cases a fixed annual remuneration.

Fixed income is only fixed if you wait to collect the coupon, the price of the bond fluctuates

The lawyer Fernando Zunzunegui attributes these euphemisms to highly purified advertising techniques. "We could say that this financial marketing takes advantage of the lack of understanding of savers as a tool to sell a product. Recall the preferred shares, a preferential concept that ensures you a better position compared to others, "he explains. He also appreciates a great euphemism in the Santander Securities, complex products, high risk and in which much money was lost but which appear with a generic name and backed by a large bank.

From the National Securities Market Commission (CNMV) explain that the regulation contemplates, as a general principle, that all information, including advertising, be impartial, clear and not misleading. "Our practice in supervision and registration is to try to ensure that the names do not mislead the characteristics of the products," they say. In addition, it notes that the term "structured deposits" is reserved for those that guarantee the recovery of 100% of the capital and, if not, "so as not to cause confusion as to its characteristics, it is preferable to call them structured products or simply structured" .

Regarding fixed income funds, the CNMV states that "they correspond to a legal category defined in this way but that does not mean that" they can not lose value ". The brochure of these products is accompanied by a categorization of risks. And another aspect that indicates the body chaired by Sebastián Albella is that there are guaranteed funds for which the CNMV does not allow the use of that name "when there are clauses that inadequately reduce the scope of the guarantee".

Confusing mortgages

The lawyer Jesus Maria Ruiz de Arriaga, director of Arriaga Associates, pulls for elevation in his criticism of the confusing denominations of financial instruments, although he admits he has no imagination to rename them. He considers it unwise to talk about a multi-currency mortgage when, in his opinion, what the applicant of this loan actually does is to enter into speculation in the currency markets.

Under the green emissions label complex offers can be disguised

Ruiz de Arriaga also explains that in the translation into Spanish that gave rise to preferred shares, the concept of shares that appeared in English was left on the way, with all the risk that implies and being the first to respond in case of bankruptcy. He also complains about the IRPH (Mortgage Loan Reference Indices) that under that innocent acronym hid a double differential for the mortgaged. I would recommend a redenomination of the fixed-income concept "because it has as much or more risk than the variable."

Zunzunegui gives clues as to where the new euphemisms can come from. Already begin to proliferate products linked to climate pacts such as Paris. "It's the arrival of green financial instruments. ESMA [supervisor europeo] is already working with consultative groups to analyze how through this denomination of green and of supposed or real environmental compromises can be disguised financial products of high risk for the investor. This is what is to come, "he warns.


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