Investment Executive | IIROC sees Increase in “Inappropriate Leveraging Strategies”
Amid growing concern about inappropriate leveraging, securities regulators published draft guidance Wednesday on the suitability and supervisory issues associated with leveraged investing.
The Investment Industry Regulatory Organization of Canada (IIROC) published a notice requesting comments on draft guidance concerning the responsibilities of dealers and registered reps when they recommend that clients use borrowed money to invest, or when they become aware that a client intends to make an investment with money borrowed from a third-party source.
The notice indicates that IIROC’s compliance exams have turned up an increasing number of cases where “inappropriate leveraging strategies” have been recommended to clients. And, it says that they have uncovered several situations where clients were not provided with sufficient information to properly understand the risks associated with leverage strategies, or the details of the debt servicing obligations that clients had taken on as a consequence of using leverage.