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.
Keywords: International, Banking, Securities, Thematic Review, Complex Financial Products, Suitability Requirements, OTC Derivatives, Asset-Backed Securities, Credit Default Swap, IOSCO
Previous ArticleFCA Reports on Work Done by Global Financial Innovation Network
PRA published the policy statement PS8/21, which contains the final supervisory statement SS3/21 on the PRA approach to supervision of the new and growing non-systemic banks in UK.
EBA published a report that sets out the final draft regulatory technical standards specifying the conditions according to which consolidation shall be carried out in line with Article 18 of the Capital Requirements Regulation (CRR).
EBA updated the list of other systemically important institutions (O-SIIs) in EU.
BCBS published two reports that discuss transmission channels of climate-related risks to the banking system and the measurement methodologies of climate-related financial risks.
UK Authorities (FCA and PRA) welcomed the findings of FSB peer review on the implementation of financial sector remuneration reforms in the UK.
PRA and FCA jointly issued a letter that highlights risks associated with the increasing volumes of deposits that are placed with banks and building societies via deposit aggregators and how to mitigate these risks.
MFSA announced that amendments to the Banking Act, Subsidiary Legislation, and Banking Rules will be issued in the coming months, to transpose the Capital Requirements Directive (CRD5) into the national regulatory framework.
EC finalized the Delegated Regulation 2021/598 that supplements the Capital Requirements Regulation (CRR or 575/2013) and lays out the regulatory technical standards for assigning risk-weights to specialized lending exposures.
OSFI launched a consultation to explore ways to enhance the OSFI assurance over capital, leverage, and liquidity returns for banks and insurers, given the increasing complexity arising from the evolving regulatory reporting framework due to IFRS 17 (Insurance Contracts) standard and Basel III reforms.
ECB published results of the benchmarking analysis of the recovery plan cycle for 2019.