Product due diligence and the suitability of minibonds: Taking the benefit of hindsight
Journal
Singapore Journal of Legal Studies
Journal Volume
[2011]
Journal Issue
2
Pages
309
Date Issued
2011
Author(s)
Abstract
This article focuses on some problems arising from applying the product due diligence requirement of the suitability rule to complex financial products. The article draws several conclusions. First, the ‘not unsuitable’ test should be adopted to reduce legal uncertainty. Second, the comparative risk approach is a better choice in assessing the suitability of investment products. However, there must be further elaboration of the classification of product risk. Third, there must be a balance between risk and return to avoid risk mismatches in product design. Fourth, what have been termed minibonds raise the problem of documentation suitability. Though it is difficult to define suitable documentation, it may be worthwhile for regulators to establish some minimum standards that might have a great influence on product risk. Financial regulators may consider differentiating between financial products in assessing their suitability rather than adopting a onesizefitsall approach.
Subjects
product due diligence, product intervention, financial consumer protection
Type
journal article