SPA Conference: Regulators and industry groups, opt for ongoing dialogue, panelist says

By Emma Trincal

New York, Oct. 18 - Panelists at the first regulatory panel of the Structured Products Association Autumn Expo conference in New York talked very little about the Dodd Frank Act and more about the current dialogue between the industry and the regulators.

"The regulator is looking at a variety of themes, such as the know-your-customer-rule; suitability; disclosure and education of the broker-dealer," said Alice Yurke, partner at law firm Ashurst.

A participant said that the regulators' outreach to the industry was a "healthy development."

"The regulators, including the SEC, CFTC, have done a lot of outreach to the industry," said Yurke.

"They've shown a genuine desire to reach out to the industry to better understand the product, the issue.

Such development may also be due to the mutual dependence between the industry and the regulators.

"These regulators are put under severe time and resource constraints by Congress, so they think it's in their best interest to have an ongoing dialogue with the industry."

Some of the products regulators are paying close attention to are principal-protected notes, commodities-linked products and income products, panelists said.

For Yurke, regulatory scrutiny of principal-protected products is nothing new.

"Principal products have been an issue since the demise of Lehman. A lot of products were sold on the basis of Lehman credit risk," she said.

Keith Styrcula, chairman of the Structured Products Association, who organized the conference and moderated the panel, made a distinction between risk and suitability.

"A product may in some cases not be suitable, but it's on a case-per-case basis," he said.

For this reason, he added, "arbitration, rather than class action," is the proper place "to solve conflicts with investors."

Speakers did not talk about the Dodd Frank Act, a topic to which another panel was dedicated.

Structured products due to their hybrid nature also falls between the cracks of some regulators, explained Yurke.

By definition, Yurke said, structured products, which are considered "qualified hybrid products," are not treated as securities.

A commodities-linked product, for instance, would fall out of the jurisdiction of the Commodity Futures Trading Commission because it is a hybrid product, she explained.

"Dodd Frank deals with swaps, dealer swaps and securities swaps," she said.

"A qualified hybrid is not covered by Dodd Frank."

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