U.S. securities regulators are objecting to a set of principles issued earlier this week by the global regulatory body, the International Organization of Securities Commissions (IOSCO), which mandate firms to ensure suitability when distributing complex financial products.
A couple of commissioners with the U.S. Securities and Exchange Commission (SEC), Troy Paredes and Daniel Gallagher, have issued a joint statement, stressing their objections to the IOSCO report, which recommends the introduction of nine principles relating to the distribution of complex products.
IOSCO guideline aims to ensure suitability for complex products
“We believe it is important to state for the record that we objected to the publication of the final report and, therefore, that the final report was not approved by the commission,” they said in their statement.
“In our view, the final report does not accurately reflect the relevant law in the U.S. Nor should the U.S. regulatory regime conform to the final report, the substance of which we disagree with in key respects,” they added. “We especially disagree with the final report’s failure to properly respect the distinction between retail and institutional investors when determining the suitability requirements that should apply.”
In its report, IOSCO notes that complex financial products may have features, and potential investment risks, that make it difficult for investors, even institutional investors, to fully understand. And, it points to the collapse of Lehman Brothers in September 2008, as an event that highlighted the extent to which even sophisticated investors failed to assess the suitability of structured investment products.
Among other things, the report recommends that, while dealers should adopt policies and procedures to distinguish between retail and non-retail customers, it says they should nevertheless be required to act fairly and honestly, and to disclose and mitigate conflicts of interest, regardless of the sort of client involved.