66FINRA’s suitability rules in the United States also scope in consideration of investment strategies, including recommendations to hold securities. Notably, Ireland requires MiFID-exempt firms to ensure that a recommended product is “the most suitable” product for the customer. Other Suitability Policy The Review Team observed that some Participating Jurisdictions allow intermediaries to limit or waive suitability requirements, in whole or in part, for customers classified as non-retail.67Conversely, German regulations require intermediaries to ensure the suitability of any investment advice, irrespective of customer classification. Similarly, in Hong Kong, intermediaries must ensure suitability when soliciting or recommending any investment product to customers who are individuals, whether classified as professional or retail. 66MiFID II jurisdictions, Hong Kong, Ontario/Quebec, Switzerland and the United States. 67DIFC
24 Some Participating Jurisdictions reported having other regulatory measures that, while not necessarily suitability-specific, seek to address risks complex products pose to different customer types. Japan has issued supervisory guidelines on the accountability of intermediaries selling certain complex products (e.g., interest rate swaps) and rules prohibiting solicitation of complex structured bonds similar to over-the-counter derivatives to certain customers. In Italy, Consob urges intermediaries to set concentration limits for client portfolios when distributing complex products and to refrain from recommending or distributing to retail clients certain types of particularly complex products (e.g. CoCos, ABS, structured and credit-linked instruments). At the time of the Review, certain European jurisdictions had also restricted the distribution of certain complex products to retail investors,68efforts which were subsequently reinforced by ESMA’s exercise of product intervention powers.694.3.6.Principle 6 – Sufficient Information/Reasonable Basis Principle 6. An intermediary should have sufficient information in order to have a reasonable basis for any recommendation, advice or exercise of investment discretion made to a customer in connection with the distribution of a complex financial product. The objective of this Principle is to provide a standard for intermediaries to have sufficient information about their customers and the relevant products to support recommendations or discretionary decisions involving complex products. Principle 6 builds on the assessment expectations of Principle 5 to establish a reasonable basis standard in respect of suitability. The MoI emphasize, in particular, approaches for intermediaries to deal with shortcomings in the information they have about customers and expectations in respect of intermediaries’ understanding of the products they recommend.