The report, which forms part of IOSCO’s on-going drive to promote customer protection, introduces nine principles that cover the following areas related to the distribution of complex financial products by intermediaries:
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classification of customers
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general duties irrespective of customer classification
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disclosure requirements
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protection of customers for non-advisory services
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suitability protections for advisory services (including portfolio management)
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compliance function and internal suitability policies and procedures
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incentives
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enforcement
Although complex financial products may not be necessarily more risky than standard financial instruments, they typically have terms, features and potential investment risks that may make it difficult for many customers, even non-retail customers, to appreciate fully. The financial crisis that began in 2008 raised serious concerns that the growing complexity of financial products made the associated investment risks less apparent to customers.
Stephen Po, the Chair of the IOSCO Committee on Market Intermediaries that drafted the Final Report, said: “These principles provide guidance for IOSCO Members and reflect the current regulatory state of play and leading practice in the distribution of complex financial instruments by intermediaries among IOSCO’s members. IOSCO is aware that this is an area undergoing constant change and innovation. It will continue to monitor closely future market and regulatory developments which may lead to further policy work in the future.”
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