Under proposals announced last week, financial firms would be required to carry out suitability tests to assess if certain complex products are too risky for professional investors.
The key proposals would require intermediaries to comply with all code of conduct requirements, including the requirement that should ensure the suitability of a recommendation or solicitation for a client is ‘reasonable in all circumstances’ when dealing with investors who are individuals, including their wholly-owned investment vehicles and family trusts.
The proposals would also streamline the criteria under the code of conduct in assessing the knowledge and experience of corporate professional investors by removing specific tests – for instance, the 40 transactions per annum requirement.
In addition, the proposals state that the Suitability Requirement be incorporated in all client agreements as a contractual term, that client agreements should not contain provisions which are inconsistent with the code of conduct and that client agreements should accurately set out, in clear terms, the actual services to be provided by the client.
However, no changes are proposed to the laws concerning access to private placements of investments by those who fulfil existing wealth criteria.
SFC’s chief executive, Ashley Alder said that consultation aimed to “keep intermediaries honest” as well as identifying those investors who require full protection under its Code of Conduct, as well as those who do not need it.
He added: “The Suitability Requirement is a cornerstone of investor protection which is why we believe that no individuals, regardless of wealth, should be classified as Professional Investors under the Code, depriving them of this vital safeguard.”
