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21 December 2016

IOSCO identifies risks to retail investors of OTC leveraged products

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IOSCO issued a report that identifies various risks related to the marketing and sale of complex OTC leveraged products to retail investors, and describes how some regulators are responding to the challenges these products present.

The Report on the IOSCO Survey on Retail OTC Leveraged Products analyses offers of rolling-spot forex contracts, contracts for differences and binary options to retail investors. The fact-finding report is based on a survey of 21 IOSCO members regarding their experiences with leveraged OTC products, the firms that sell them, and current regulatory and supervision frameworks.

 Leveraged OTC products have been subject to significant regulatory scrutiny in a number of jurisdictions. Survey respondents raised concerns that retail investors may not be able to assess the risks associated with these products or withstand the losses they may incur. Several studies show that a large majority of investors in these complex products lose money, giving rise to investor complaints regarding their sale. In addition to the poor performance of these products, survey respondents also highlighted difficulties related to the withdrawal of client funds and aggressive or misleading marketing and sales practices.

The report describes a variety of possible regulatory approaches and standards for mitigating the risks that OTC leverage products pose to retail investors. A small number of reporting jurisdictions have severely restricted or in some cases banned the sale of these products to retail investors. In all the reporting jurisdictions where such retail sales are allowed, only authorised or registered firms can legally make such sales to the general public, or such authorisation/registration is expected to become a requirement in the near future.

Full report


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