What's in a Name? Structured Products Disclosure and Labeling in the US and EU

Abstract

One of the many ripples in the wake of the financial crisis has been a renewed emphasis on regulation intended to enhance investor protection. Structured products, which have increasingly been sold to retail customers, have been the focus of much regulatory attention in the US and Europe. Both the Financial Industry Regulatory Authority (“FINRA”) and the Securities Exchange Commission (“SEC”) have jurisdiction over the sale of certain structured products in the US. Much of the regulatory focus in the US has been related to “principal-protected” notes, as a result of losses incurred by purchasers of such notes that had been issued by Lehman Brothers Holdings Inc. (“Lehman”) and that lost most of their value when Lehman declared bankruptcy in September 2008. FINRA issued revised guidance in this area in 2009 and the SEC was reported to have commenced an inquiry into the marketing of principal-protected notes in 2010. In Europe, the European Commission (the “Commission”) announced in 2010 its intention to regulate the sale of packaged retail investment products or PRIPs, which include retail structured products. The Commission initiative proposes a highly prescriptive standardized disclosure document that would be mandatory for all PRIPs. While both the guidance in the US and the proposed legislation in the EU are focused on sales practices as well as disclosure requirements, this article focuses on the disclosure aspects. After providing some background as context to the current regulatory environment, this article will outline the recommendations and proposals for the disclosures to be made in connection with the sale of structured products to retail customers in the US and EU with a view to raising awareness of, and offering guidance for compliance with, these evolving requirements.