Complex Notes May Need Tougher Oversight, Finra’s Ketchum Says

Regulators may have to increase oversight of more complex financial products if banks don’t clamp down on improper sales practices, the head of the Financial Industry Regulatory Authority said.

“If the industry and regulators are unable to demonstrate the ability to control sales practice abuses related to these complex products through appropriate supervisory controls and oversight then, in my opinion, some form of product approval may become inevitable,” Richard Ketchum, chairman and chief executive officer of Finra, said today at a forum held by the Securities Industry and Financial Markets Association in New York.

Finra, the industry-backed regulator, has said investors need to understand better the risks involved with complex products such as structured notes, which can offer higher yields by combining debt with derivatives. In July, Finra issued an investor warning about exchange-traded notes after a security tied to stock-market volatility plummeted in March.

Ketchum said the types of products that may need approval include so-called range accrual notes, which pay investors if two assets are both above a certain price, “worst-of” notes, linked to the worst performing asset in a basket and notes tied to futures of volatility indexes.

Finra doesn’t now require banks that sell complex securities such as structured notes to submit their products for review, instead requiring brokers to explain the risks of a product to customers, Ketchum said.

To contact the reporter on this story: Kevin Dugan in New York at

To contact the editor responsible for this story: Alan Goldstein at

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