Globally, regulators are taking a similar approach.
In many of the major fund centres, regulators are taking similar approaches to product governance and disclosure. A sharing of information – either formally or informally – is deepening regulatory knowledge of the different product types and helping to enhance regulators’ capabilities.
Firms’ product governance procedures are under increased scrutiny. This is not just about the design phase. There are new investment management requirements for ongoing monitoring and stress testing of products, and for better information flows between manufacturers and distributers.
Across the world, policymakers have expressed concerns that investment products are mutating and that some are too complex for retail investors, who are often unable to understand the risk-reward profile of products. Therefore, product disclosure rules are being harmonised and a number of countries are introducing risk ratings or classification for products or are prohibiting some products from being sold on an execution-only basis.
Some regulators are acquiring new or extended powers to intervene directly in the retail market place, to modify or ban products that it considers do not have the intended market impact or are sold to the wrong investors. For others, the emphasis is on increased enforcement of existing product rules. And in some jurisdictions, product regulation is being extended to funds for affluent and professional investors.