IOSCO Consults on Policy Measures for OTC Leveraged Products
IOSCO issued a consultation report that proposes policy measures to consider when addressing the risks arising from the offer and sale of OTC leveraged products to retail clients. The report on retail OTC leveraged products identifies various regulatory approaches aimed to enhance the protection of retail investors who are offered OTC leveraged products, often on a cross-border basis. The report covers the offer and sale by intermediaries of rolling-spot forex contracts, contracts for differences (CFDs), and binary options. Comments on the consultation report must be submitted on or before March 27, 2018.
IOSCO proposes the following policy measures in the report and offers guidance to regulators on how to apply each one:
- A licensing requirement for all firms that sell the relevant products to retail investors either domestically or on a cross-border basis
- Leverage limits or minimum margin requirements
- Measures to address the risk of investors losing more than their initial investment
- Measures to enhance the disclosure of costs and charges of the products
- Measures to improve the disclosure of risks of the products, including profit and loss ratios
- Other focused requirements to enhance the quality of pricing and order execution
- Measures to restrict the sale, distribution, and marketing of the products with a view to addressing mis-selling risk
Intermediaries market and sell these products to retail investors in most IOSCO member jurisdictions. In its report, IOSCO encourages its members to improve the practices of licensed firms that offer OTC leveraged products, in an effort to better inform investors about the features and risks of these products and to more effectively combat illegal cross-border activity in this area. This consultation report is part of the ongoing work of IOSCO on retail investor protection. In December 2016, IOSCO had published a fact-finding report titled "Report on the IOSCO Survey on Retail OTC Leveraged Products" that describes the main risks, activities, and participants in this retail OTC market segment. The current consultation is part of a wider IOSCO mandate, which will also include policy proposals and guidance regarding investor education material on relevant products and firms, along with the enforcement approaches and practices to address the risks posed by unlicensed firms operating in this area. IOSCO is seeking feedback on the tools and measures proposed in this report.
Related Links
Comment Due Date: March 27, 2018
Keywords: International, Securities, OTC Leveraged Products, Customer Protection, IOSCO
Previous Article
BoE Proposes to Discontinue Collection of Form VPRelated Articles
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.
BIS Bulletin Examines Cognitive Limits of Large Language Models
The use cases of generative AI in the banking sector are evolving fast, with many institutions adopting the technology to enhance customer service and operational efficiency.
ECB is Conducting First Cyber Risk Stress Test for Banks
As part of the increasing regulatory focus on operational resilience, cyber risk stress testing is also becoming a crucial aspect of ensuring bank resilience in the face of cyber threats.
EBA Continues Momentum Toward Strengthening Prudential Rules for Banks
A few years down the road from the last global financial crisis, regulators are still issuing rules and monitoring banks to ensure that they comply with the regulations.
EU and UK Agencies Issue Updates on Final Basel III Rules
The European Commission (EC) recently issued an update informing that the European Council and the Parliament have endorsed the Banking Package implementing the final elements of Basel III standards