Two members of the U.S. Securities and Exchange Commission objected to a report on suitability requirements for complex financial products put out by an international group.
The document, issued by the International Organization of Securities Commissions on Jan. 21, sets out nine “principles” that include distinguishing between individual and institutional investors, adequately disclosing risks and making sure a customer understands an investment’s structure. The guidelines are intended for distributors of securities, such as brokers. The SEC, which currently lacks one of its five commissioners, didn’t approve the report.
“In our view, the Final Report does not accurately reflect the relevant law in the U.S.,” SEC commissioners Troy Paredes and Daniel Gallagher said in a statement. “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.”
Complex products have features and risks that “are not reasonably likely to be understood by a retail customer,” according to the report.
IOSCO, whose members include regulators in more than 100 countries, is a policy forum that tries to develop and implement international oversight and enforcement standards. The board is made up of representatives from 32 securities regulators, including the SEC.
Messages left with representatives for Paredes and Gallagher weren’t returned.
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