IOSCO publishes suitability requirements for distribution of complex financial products

The International Organization of Securities Commissions (IOSCO) has published a final report on ‘Suitability Requirements with respect to the Distribution of Complex Financial Products’, which sets out principles relating to the distribution by intermediaries of complex financial products to retail and non-retail customers.

The final report introduces nine principles relating to distribution of complex financial products, covering the following areas:

   – Classification of customers

  –  General duties irrespective of customer classification

   – Disclosure requirements

   – Protection of customers for non-advisory services

   – Suitability protections for advisory services (including portfolio management)

   – Compliance function and internal suitability policies and procedures

   – Incentives

   – Enforcement

The principles are the result of work carried out by IOSCO since 2008, when the collapse of investment bank Lehman Brothers raised concerns that financial intermediaries had failed to assess the suitability of complex products for their clients.

As part of the work developing the final report, some 90 investment firms globally were surveyed about suitability and mis-selling risks. That work covered options, hedge funds, variable insurance products, direct participation programs/limited partnerships and real estate investment trusts.

Stephen Po, the chair of the IOSCO Committee on Market Intermediaries that drafted the final report, said: “These principles provide guidance for IOSCO Members and reflect the current regulatory state of play and leading practice in the distribution of complex financial instruments by intermediaries among IOSCO’s members. IOSCO is aware that this is an area undergoing constant change and innovation. It will continue to monitor closely future market and regulatory developments which may lead to further policy work in the future.”

Click here to read the final report: [asset_library_tag 6263,Suitability Requirements with respct to the Distribution of Complex Financial Products]


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