Securities regulators are in a better position to guarantee investor protection, following the release of a report on regulation of retail structured products.

The report, published on December 20 by the International Organisation of Securities Commissions, provides a toolkit outlining regulatory options, which securities regulators may find useful to regulate retail structured products.

The toolkit is meant to enhance investor protection by providing securities regulators with possible approaches to address certain concerns with such products.

To ensure that the toolkit serves the purpose, the proposed tools are designed to allow for a wide range of application and adaptation in different jurisdictions.

In a statement made available to our correspondent on Sunday, IOSCO said, “Securities regulators may find the toolkit useful because of the growing popularity of complex financial tools among retail investors. These products combine derivatives with other financial instruments. Retail investors might lose money through not understanding the products’ complexity.”

According to it, several events, including the 2008 default on products relating to the Lehman Brothers’ failure, exposed the problems retail investors can face with structured products.

It explained that these events raised concern among its members about investors understanding of the products, design, disclosure, suitability, mis-selling and post-sale product controls.

And it influences the development of the toolkit, which has five sections with 15 regulatory tools that are organised along the value chain of the retail structured product market, from issuance to distribution to investment.

The regulatory tools were targeted at issues such as potential regulatory approach to retail structured products; potential regulation of the product design and issuance; and potential regulation of product disclosure and marketing.

They also cover potential regulation of the product distribution; and potential regulation of post-sales practices (once investors have the products).

The Managing Director, French Autorité des Marchés Financier, Mr. Edouard Vieillefond, co-led the task force that produced the report, together with the Chair, IOSCO Board and Chairman, Australian Securities and Investments Commission, Mr. Greg Medcraft.

Vieillefond said, “Because it encourages the emergence of a more secured environment along the value chain of the retail structured product market, this toolkit works as a strong incentive for the industry to develop understandable innovative products to fulfil investors’ needs.

By doing that, he said the toolkit would create better conditions for financial innovation to suitably progress.

Source: Punch (by Simon Ejembi)