Relaunch Investment Suitability

2 FINMA Discussion Paper
Following the bankruptcy of Lehman Brothers and Madoff’s
investment fraud case, the Swiss Financial Market Authority
investigated the marketing of financial products and found
significant deficiencies in the protection of private investors. Among
other things, FINMA questioned the imbalance of information
between financial institutions and private clients. In the discussion
paper presented on 10 November 2011 FINMA suggests various
options to balance out the information asymmetry and improve
investor protection.
Complexity index of listed structured derivatives in Switzerland
Average
complexity
of issued
products
high
average
low
Q1-07
Ernst & Young Relaunch Investment Suitability
FINMA also paid close attention to the increasing complexity
of financial products. In its judgement, this leads to unsuitable
products reaching the portfolios of private clients, or those which
have only limited suitability with respect to investment objectives
and risk tolerance. A classification model developed by Ernst & Young
and Derivative Partners which takes account of multiple factors
(such as the number of underlying or embedded options) now
shows that the complexity of the products issued since the end
of 2008 is starting to increase again. Only listed products were
considered in the process. The trend toward reduced complexity
which started with the financial crisis is no longer recognizable. In
the light of this, investor protection regulations at the point of sale
appear to be in line with the times.
Q2-07 Q3-07 Q4-07 Q1-08 Q2-08 Q3-08 Q4-08 Q1-09 Q2-09 Q3-09 Q4-09 Q1-10 Q2-10 Q3-10 Q4-10
Quarters 2007–2010
Index
4-year average
Trend Source: Ernst & Young and Derivative Partners
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