The Securities and Exchange Commission has failed to approve the International Organization of Securities Commission’s final report on the suitability requirements for distributing complex financial products. Commissioners Troy Paredes and Daniel Gallagher say they disapprove of its release. They don’t think it accurately portrays relevant law and that the US regulatory regime should not conform to it.
IOSCO believes that the 2008 economic collapse brought up serious concerns about how the increasing complexity of certain financial products has made it harder for clients to see the risks involved.
The report lays out nine principals to make sure there is proper customer protection related to complex financial instruments. Among the principals: intermediaries must implement policies to note the difference between non-retail and retail clients as they relate to financial instruments and execute “reasonable steps” to handle conflicts of interest, while exposing the risks should the client’s interest potentially be compromised; firms have to set up specific internal policies that support suitability requirements; and that intermediaries that recommend certain complex instruments have to take reasonable steps to make sure that their counsel is grounded upon a reasonable assessment that the financial product’s risk-reward profile and structure is aligned with the customer’s knowledge, experience, investment goals, inclination toward risk, and capacity to handle loss.
“In the worldwide race to the bottom to see which countries will protect their investors the least, the SEC is our champion, leading the charge for the United States of America to surely win a medal in this event,” says Shepherd Smith Edwards and Kantas, LTD, LLP founder and stockbroker fraud lawyer William Shepherd.
IOSCO Report on Complex Products Fails to Attract Votes for SEC Approval, Bloomberg/BNA, January 24, 2013
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