Product Due Diligence and the Suitability of Minibonds: Taking the Benefit of Hindsight

21 Pages Posted: 10 Feb 2012

See all articles by Christopher C. Chen

Christopher C. Chen

Singapore Management University School of Law

Date Written: December 31, 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 one-size-fits all approach.

Suggested Citation

Chen, Christopher C., Product Due Diligence and the Suitability of Minibonds: Taking the Benefit of Hindsight (December 31, 2011). Singapore Journal of Legal Studies, No. pp. 309-329, December 2011. Available at SSRN: https://ssrn.com/abstract=2002479

Christopher C. Chen (Contact Author)

Singapore Management University School of Law ( email )

55 Armenian Street
Singapore, 179943
Singapore

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