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Structured Products Facing Mis-Selling Risks Cautions Regulator

Near-zero interest rates in Europe are causing investors to seek higher-yielding assets and could lead to improper sales of structured products to individual investors, according to a market regulator.

“The search for higher returns by investors in a historical period of low interest rates leads retail consumers to increase their demand for innovative forms of investments, such as complex structured products,” said Steven Maijoor, chairman of the Paris-based European Securities and Markets Authority. “This heightens the risk of mis-selling.”

ESMA will need to remind European supervisors and banks about proper selling practices for complex investments such as structured products, Maijoor said in a Dec. 12 speech. His comments echo remarks from Richard Ketchum, chief executive officer of the U.S. Financial Industry Regulatory Authority, who said Sept. 27 regulators may need to increase oversight if banks don’t clamp down on improper sales practices.

Supervisors are paying particular attention to the quantity and quality of information provided to investors by product creators and distributors to enhance transparency in Europe’s 820 billion-euro ($1.1 trillion) market for individual investors.

European Union-wide regulations for structured products, which will require banks to provide so-called key information documents for the products they sell to describe the main characteristics and risks, could be in place by the end of 2014.

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