IOSCO Reviews Application of Principles on Complex Financial Products
IOSCO published a report on findings of the thematic review of the implementation of the IOSCO principles on suitability requirements for distribution of complex financial products. These nine IOSCO principles on suitability requirements were published in January 2013. The review aimed to understand the way IOSCO member jurisdictions have implemented these suitability standards. The review concluded that the majority of participating jurisdictions have implemented suitability requirements for complex products in a manner generally consistent with the IOSCO principles.
The review considered different regulatory models and intermediary distribution channels, including the ways fintech has impacted the suitability space. While only five jurisdictions earned ratings of "Fully Consistent" across all nine of the principles, the review team rated the majority of the remaining jurisdictions as "Fully" or "Broadly Consistent" across most of the principles. The review team observed that, in some cases, jurisdictions rated "Partly Consistent" or "Not Consistent" for some principles had reforms in progress, which may improve these ratings once implemented. The following are the key findings and observations from this review:
- Participating jurisdictions generally had product-complexity-neutral suitability regimes.
- What constitutes a complex financial product differs among jurisdictions.
- Most jurisdictions have standards for dealing with customers fairly and for dealing with conflicts of interest
- Many participating Jurisdictions do not require intermediaries to consider product riskiness or complexity in connection with classifying some customers
- The robustness of suitability regimes appears to correlate to levels of market development and participation
- Fintech development in respect of digital advisers and online platforms has created new suitability-related challenges
The review focuses on business conduct and the risks posed by complex financial products and is consistent with the core IOSCO objective of investor protection. For the purpose of this review, “complex financial products” refer to financial products whose terms, features, and risks are not reasonably likely to be understood by a retail customer because of their complex structure (as opposed to more traditional or plain vanilla investment instruments) and which may be difficult to value. Thus, all IOSCO members that have complex financial products were invited to participate in the review. Twenty-nine IOSCO members from 28 jurisdictions participated in the review. The participating jurisdictions included both developed and growth and emerging market jurisdictions.
Related Links
Keywords: International, Banking, Securities, Thematic Review, Complex Financial Products, Suitability Requirements, OTC Derivatives, Asset-Backed Securities, Credit Default Swap, IOSCO
Previous Article
IASB Amends IFRS 9 and IFRS 7 in Response to IBOR ReformRelated Articles
EBA Publishes Phase 2 of Technical Package on Reporting Framework 2.10
EBA published phase 2 of the technical package on the reporting framework 2.10, providing the technical tools and specifications for implementation of EBA reporting requirements.
FASB Proposes to Delay Implementation of Insurance Contracts Standard
FASB issued a proposed Accounting Standards Update that would grant insurance companies, adversely affected by the COVID-19 pandemic, an additional year to implement the Accounting Standards Update No. 2018-12 on targeted improvements to accounting for long-duration insurance contracts, or LDTI (Topic 944).
EBA Calls on Resolution Authorities to Consider Impact of COVID Crisis
EBA published a statement on resolution planning in light of the COVID-19 pandemic.
ESMA Updates Reporting Manual on European Single Electronic Format
ESMA updated the reporting manual on the European Single Electronic Format (ESEF).
BCBS and FSB Set Out Recommendations for Benchmark Transition
BCBS and FSB published a report on supervisory issues associated with benchmark transition.
APRA Updates Regulatory Approach to Loan Deferrals Amid COVID Crisis
APRA updated the regulatory approach for loans subject to repayment deferrals amid the COVID-19 crisis.
IAIS Sets Out Recommendations for Benchmark Transition for Insurers
IAIS published a report on supervisory issues associated with benchmark transition from an insurance perspective.
BCBS Finalizes Revisions to Credit Valuation Adjustment Risk Framework
BCBS Finalizes Revisions to Credit Valuation Adjustment Risk Framework
ECB Guideline on Materiality Threshold for Credit Obligations Past Due
ECB published a guideline (2020/97), in the Official Journal of European Union, on the definition of materiality threshold for credit obligations past due for less significant institutions.
PRA Statement on Application of Matching Adjustment Amid Crisis
PRA published a statement to insurers that clarifies the approach to application of the matching adjustment during COVID-19 crisis.
