Suitability Standards for Complex Financial Products
Global securities regulators have finalized new suitability standards defining the responsibilities of brokers and others who offer complex financial products to retail or other investors who might not be able independently to assess risk. Building on a consultative document issued last year, this work is part of a global effort that also addresses suitability standards to govern bank product sales to similar customers (e.g., those recently adopted in the U.K.), although the Basel Committee has yet to issue rules comparable to IOSCO’s. These may require significant change in broker-dealer activities, including those related to non-retail customers deemed less than wholly suitable for complex products. This may, in turn, reduce market demand for products judged “complex,” perhaps altering broader financial-market practice, especially with regard to structured investments developed by large banking organizations. However, the degree to which the U.S. will adopt these standards, at least for securities firms, was thrown into doubt after the two Republican SEC Commissioners objected to the report, saying it does not reflect U.S. law and was not approved by the agency.
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