The Research On Regulatory Of Suitability In Sales Of Investment Products And Services In China

With the constant development of financial innovation, the investment products are increasing and getting more and more complicated. These complex investment products have gradually reached the field of individual lives and therefore provided the retail investors with plenty of investment opportunities. On the other hand, however, it has become of challenge for the protection of investors due to the complication and high risk. The trend towards retail of the complex investment products has led to the dependence of investors on product dealers and investment consultants' help for making their choices. But in reality, dealers' and consultants' sole pursuit of profit have resulted in fraud or intentional concealing, which made the investors' legal rights and interests fragile. During the financial crisis in 2008, the "Lehman Brothers Mini-Bonds Incident" in Hongkong has drawed large attention towards the suitability of financial product sales and service. Banks in Hongkong are suspected to have misled the inexperienced retail investors so as to sell complex investment products like Lehman Mini-Bonds to them, which led to great loss of the investors. The traditional means of Information Disclosure for the protection of investors appear insufficient nowadays. Other countries have regarded suitability supervision as the major measure to cope with the challenge of financial innovation and investor protection. Based on an analysis on the development of the suitability rules in the developed countries, especially the US, this article has studied on the system of investment products and service suitability supervision in China.This article consists of three parts: Introduction, main text and conclusion. Among them, the main text are divided into three chapters:The first chapter defined the concept of suitability rules through comparison of cases in different countries. "Suitability rules" requires the financial institutions to recommend and sell suitable investment products to the investors only after having mastered their the experience, knowledge, financial situation, investment purpose and risk tolerance. And then it introduced the emergence and development progress of suitability rules from two aspects, which are the progress from the US to the major financial markets around the world and the progress from self-discipline to legal rules. The suitability rules have been used and developed by legislation and supervision rules in many countries and have become important legally biding rules for the protection of investors.The second chapter analyzed the content of suitability rules, which includes Due Deligence on clients, risk assessment of products and assessmenf of product suitability and transaction form suitability. Invoestors could ask for lawsuit, arbitration or others with dealers' violation of the rules. Therefore, suitability rules are legally binding. Then the author compared the suitability supervision systems in various countries based on an analysis on the challenge of financial innovation development and investor protection, and pointed out that the suitability rules, along with the information disclosure system, constituted the foundation for the protection of investors. Following is the analysis on the problems of suitability supervision system that were exposed during the "Lehman Mini-Bonds Incident".The third chapter revealed the existing problems of suitability supervision system in China, which include: unscientific categorization of investors, ambiguous standards of product categorization, mere attention to formal examination and the neglect of the obligation performance supervision on the suitability. And then, the author put forward suggestions on establishing sophisticated classification system of investment products and investors, and attaching importance to the supervision of suitability obligation performance.