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IOSCO Reviews Member Efforts To Deter Mis-selling Of Complex Financial Products

Regulators	935 VIEWS
Regulators
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PROSHARE
PROSHARE

Thursday, September 26, 2019 /02:18PM / By IOSCO

IOSCO today published a Thematic Review report (Report) indicating that most of the participating jurisdictions have implemented the necessary rules aimed at preventing the mis-selling of complex financial products, consistent with IOSCO standards.

The Thematic Review was conducted by the IOSCO Assessment Committee (AC), with the participation of 29 IOSCO members from both developed and emerging market jurisdictions.

A Thematic Review offers a snapshot of implementation of IOSCO Principles, which enables the AC to identify gaps in implementation and examples of good practice.

The AC reviewed implementation of the nine Principles set out in the 2013 IOSCO report Suitability Requirements with respect to the Distribution of Complex Financial Products. The nine Principles are aimed at promoting robust customer protection by preventing the mis-selling of complex financial products. The Principles focus on the application of suitability and related disclosure requirements to intermediary services, including selling, advising, recommending and managing discretionary accounts or portfolios, as well as the regulator's role in supervision and enforcement.

The Report includes several findings and observations from the Thematic Review, including for instance, that most jurisdictions have standards for how to treat customers fairly and for addressing conflicts of interest. In addition, the majority of jurisdictions require intermediaries to distinguish between complex and non-complex products despite the fact that what constitutes a complex financial product differs among jurisdictions. Notably, none of the participating jurisdictions reported having a suitability regime specifically for complex products.

The Report found that with respect to customer classification, most jurisdictions allow intermediaries to classify certain types of customers as "non-retail" (or its equivalent), based on the nature of the entity or specified monetary thresholds alone. However, these practices do not consider the complexity and riskiness of different products, as required by the Principles.

The review also found that FinTech developments related to digital advisors and online platforms have created new suitability-related challenges.

In light of the findings and observations, the Report indicates that jurisdictions must have effective supervisory and enforcement mechanisms to support suitability regimes for complex products and to ensure that intermediaries take corrective action where their behavior falls short of supervisory or regulatory expectations. The Report also urges jurisdictions to consider enhancing disclosure requirements to help customers make informed investment decisions and understand the advice they receive from intermediaries.

IOSCO will continue conducting other Thematic Reviews on topics that are relevant for achieving the organization's objectives, including investor protection.