B-D Corner: Helpful Guidance for Supervision of Complex Products
Many opine the financial crisis was hastened by the financial industry’s use of byzantine and risky securities. FINRA recently released more specific guidance concerning supervision by broker dealers over the sale of complex products: Regulatory Notice 12-03, Complex Products: Heightened Supervision of Complex Products.The Notice provides helpful guidance for determining whether products require heightened supervision, as well as specific supervisory and compliance procedures firms should have in place. Characteristics of Complex Products FINRA notes that “any product with multiple features that affect its investment returns differently under various scenarios is potentially complex” and provides a non-exclusive list of characteristics to consider, including:
- Asset-backed securities secured by a pool of collateral (i.e. mortgages or consumer credit card payments) whose risks are not readily apparent;
- Any product with an embedded derivate component that is difficult to understand (i.e. structured notes with an embedded derivative); and
- Investments tied to the performance of markets not readily understood (i.e. an exchange traded product with exposure to futures on the CBOE Volatility Index).
- Managing Partner and CEO
Michelle L. Jacko, Esq. is the Managing Partner and CEO of Jacko Law Group, PC, which offers securities, corporate, real estate and employment law counsel to broker-dealers, investment advisers, investment companies ...
Add a comment
Recent Posts
- New SEC Climate Change and ESG Task Force to Enhance Investor Protection by Red Flagging Examples of Corporate Greenwashing
- What Investment Advisers Must do to Qualify for the DOL’s Prohibited Transaction Exemption for IRA Rollovers
- SEC Division of Examinations Cites Enhanced Focus on Business Continuity Processes, Protection of Retail Investors and ESG-Related Risks Among its 2021 Priorities
- FINRA Report Suggests Growing Need for Enhanced Risk Management in Cybersecurity and Outside Business Activities
- Deadline Approaching: Considerations for Your Form ADV
- Leveraging JLG's Latest Service: Real Estate
- Safeguarding Your Firm Against Fraudulent or Improper Recognition of Revenue
- New Advisers Act Advertising Rule to Undergo Further Review
- Investors, Advisers Must be Mindful to Comply with New U.S. Ban on Estimated $1 Trillion of Chinese Securities
- Your First Meeting on the SEC’s New Investment Adviser Marketing Rule Should Address These Topics
Topics
- Securities and Exchange Commission (SEC)
- Investment Advisers
- FINRA
- Cybersecurity
- Regulatory Examinations
- Advertising
- Broker-Dealers
- Policies and Procedures
- Investors
- Social Media Marketing
- Privacy Policy
- Due Diligence
- Transition Services
- California Consumer Privacy Act (CCPA)
- Cryptocurrency
- Disclosures
- Aging Clients
- Advisers Act
- ICOs
- Defraud
- Virtual Currency
- Dodd-Frank Act
- Ponzi Scheme
- FAQs
- Office of Compliance Inspections and Examinations (OCIE)
- Broker Protocol
- Securities Law
- Whistleblower
- Form U5
- Private Equity
- Private Funds
- Hedge Funds
- churning
- Regulation Best Interest
- Personally Identifiable Information (PII)
- Government Shutdown
- Risk Alert
- Exchange-Traded Funds (ETFs)
- Investment Company Act
- Rule 6c
- Wells Fargo