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January 23, 2013

Commissioners Paredes and Gallagher Disavow IOSCO Investor Suitability Report

By Amanda Maine, J.D.

SEC Commissioners Troy A. Paredes and Daniel M. Gallagher issued a statement objecting to the publication of a report by the International Organization of Securities Commissions (IOSCO) that outlined principles relating to distribution by intermediaries of complex financial products to retail and non-retail customers. IOSCO's report, which cited issues about the extent of intermediaries' responsibility for assessing the suitability of customers for risky and complex structured investment products as a factor in the global financial crisis, sets out nine principles that intermediaries should take into account when assessing whether complex instruments are suitable investment vehicles for certain customers.

In their statement, Paredes and Gallagher, the Commission's two Republican commissioners, stated for the record that they objected to the publication of IOSCO's report and that it was therefore not approved by the Commission. Paredes and Gallagher advised that the report does not accurately reflect the relevant law in the U.S. and that regulators in the U.S. should not conform to the report's recommendations. Paredes and Gallagher stated that they disagreed with the report in key respects, including what they characterized as the report's failure to properly respect the distinction between retail and institutional investors when determining the suitability requirements that should apply.

Paredes and Gallagher, together with fellow Commissioner Luis Aguilar, objected last year to an IOSCO report on possible risks money market funds may pose to systemic stability.

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