IOSCO report on suitability requirements with respect to the distribution of complex financial products – Diverging regulatory views

IOSCO published a report on 21 January 2013 on recommended suitability requirements for distribution of complex financial products. Stephen Po of Hong Kong's SFC chaired the committee that prepared the report. The report sets out nine principles, which are broadly similar to obligations under the SFC's Code of Conduct. The report reflects a trend of imposing greater regulatory obligations on the distribution process and may foreshadow further changes to the SFC's Code of Conduct.

Of interest, the US SEC has issued a press release indicating it does not agree with the report and the principles and does not intend to apply them in the US. The press release is set out below:

"Yesterday, IOSCO published a Final Report entitled, "Suitability Requirements with respect to the Distribution of Complex Financial Products." We believe it is important to state for the record that we objected to the publication of the Final Report and, therefore, that the Final Report was not approved by the Commission. In our view, the Final Report does not accurately reflect the relevant law in the U.S. Nor should the U.S. regulatory regime conform to the Final Report, the substance of which we disagree with in key respects. We especially disagree with the Final Report's failure to properly respect the distinction between retail and institutional investors when determining the suitability requirements that should apply."

Key Contacts

Scott Carnachan

Consultant | Financial Services

Email or call +852 2825 9265