Central Bank of Ireland Requires Investment Firms to Improve Risk Disclosure of Complex Investment Products
The Central Bank of Ireland has written to MiFID investment firms, outlining the findings from a series of targeted reviews of Structured Retail Products (SRPs). These reviews examined SRPs manufactured and distributed by investment firms in the MiFID investment sector. A number of areas were identified where further action is needed by firms to ensure their governance and oversight of SRPs keeps pace with an increasingly complex retail investment market, so that investors are appropriately protected.
The reviews found a number of poor practices and weaknesses in firms' processes, which increase risks to investors. This includes failure by firms to consider potential difficulties investors may have in understanding the complex features involved in some SRPs; failing to present past performance information in a fair and balanced manner; and not including prominent capital at risk warnings in marketing materials.
Director of Consumer Protection, Colm Kincaid, said: "The retail investment market is changing rapidly, with an increasing shift away from traditional, capital protected products to more complex, capital at risk products. As complexity increases, so too do the risks to investors and the responsibilities regulated firms have to protect those investors' best interests. Our recently published Outlook Report highlighted a number of risks for consumers from changing business practices and ineffective disclosures on investment products, as well as what we expect regulated firms to do to deal with those risks. The work we are publishing today builds on that Report."
"We carried out these reviews because we want to see that regulated firms meet high standards in how they design, manufacture and distribute complex investment products to retail investors. In particular, we want to see that complex investment products are designed with real investment needs in mind, that they are targeted only at investors with those needs and that the risks are properly explained. We are requiring firms to take action to improve their performance on each of these fronts, as well as highlighting good practices which we want to see emulated across the sector."
The letter requires regulated firms to take action to identify a sufficiently granular target market for SRPs and to drive improvements in the quality and transparency of disclosures to investors of the risks relating to these products.
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