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January 21, 2013 at 10:07 AM
Intermediaries should be required to adopt and apply appropriate policies and procedures to distinguish between retail and non-retail customers when distributing complex financial products, according to a new report.
This requirement is one of nine suitability principals outlined in a final, January 2013 report of the board of the International Organization of Securities Commissions, headquartered in Madrid, Spain. The report details IOSCO principals on suitability requirements with respect to the distribution of complex financial products. (i.e., standards for intermediaries to assess whether a particular product matches the investment knowledge, experience, objectives and risk tolerance of a customer).
Authored by IOSCO’s Technical Committee, the consultation report (“Suitability Requirements with respect to the Distribution of Complex Financial Products”) takes into account public comments. The principals outlined in the report are as follows:
Principle 1: Intermediaries should be required to adopt and apply appropriate policies and procedures to distinguish between retail and non-retail customers when distributing complex financial products. The classification of customers should be based on a reasonable assessment of the customer concerned, taking into account the complexity and riskiness of different products. The regulator should consider providing guidance to intermediaries in relation to customer
Principle 2: Irrespective of the classification of a customer as retail or non-retail, intermediaries should be required to act honestly, fairly and professionally and take reasonable steps to manage or mitigate conflicts of interest through implementing appropriate procedures in the distribution
of complex financial products, and where there exists a potential risk of damage to the customer’s interest, the intermediaries should, where appropriate, be required to clearly disclose the risk.
