IOSCO provided guidance on the methods by which its members can ensure that retail investors are protected from OTC leveraged products. The guidance is focused on rolling spot foreign exchange contracts, contracts for differences and binary options.
In the report, IOSCO outlined guidance in the form of "toolkits" for regulators pertaining to (i) policy measures that confront the risks arising from the marketing and sale of OTC leveraged products by intermediaries, (ii) educating investors about the risks of OTC leveraged products, as well as the risks of the firms that offer them, and (iii) enforcement approaches to alleviate the risks posed by unlicensed firms that offer such products.
In particular, the "regulatory toolkit" includes suggested conduct standards, such as requiring licensing for firms selling the products to retail investors, leverage limits or margin requirements, increased disclosure regarding the costs and risks associated with the products, and measures to restrict the sale of the products (i.e., suitability).
Commentary / Nihal Patel
As previously considered, IOSCO's report is not especially notable for U.S. firms (i.e., because all of these products, when sold into the United States, are already subject to regulation and registration requirements applicable to firms involved in their sale).
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