Title

Product Due Diligence And the Suitability Of Minibonds: Taking the Benefit of Hindsight

Publication Type

Journal Article

Publication Date

12-2011

Abstract

This article focuses on some problems arising from applying the product due diligence requirement of the suitability rule to complex financial products. The article draws several conclusions. First, the ‘not unsuitable’ test should be adopted to reduce legal uncertainty. Second, the comparative risk approach is a better choice in assessing the suitability of investment products. However, there must be further elaboration of the classification of product risk. Third, there must be a balance between risk and return to avoid risk mismatches in product design. Fourth, what have been termed minibonds raise the problem of documentation suitability. Though it is difficult to define suitable documentation, it may be worthwhile for regulators to establish some minimum standards that might have a great influence on product risk. Financial regulators may consider differentiating between financial products in assessing their suitability rather than adopting a onesizefitsall approach.

Keywords

structured note, minibond, investor protection, suitability, conduct of business, product due diligence, documentation

Discipline

Banking and Finance Law | Commercial Law

Research Areas

Law, Society and Governance

Publication

Singapore Journal of Legal Studies

Volume

2011

Issue

2

First Page

309

Last Page

329

ISSN

0218-2173

Publisher

National University of Singapore Faculty of Law

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