[GA - passed] Sophisticated Investors Protocol

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Sophisticated Investors Protocol
Category: Regulation | Area of Effect: Consumer Protection
Proposed by: Simone Republic, Co-authored by: Imperium Anglorum | Onsite Topic​

The World Assembly,

Acknowledges previous resolutions to protect the interest of investors (GAR#474, #633);

Recognizing the wide range of investment products available but that potential investors have widely differing levels of knowledge, expertise, risk appetite, and other circumstances;

Believing that distinguishing between sophisticated and other investors is necessary to protect ordinary investors from purchasing high risk products but also allow knowledged investors with sufficient expertise to assume higher risks;

Hereby defines:
"Institution" to mean a financial institution with qualified staff and regulated by a competent authority in at least one member state;

"Instruments" to include all securities, currencies, futures, options, and all related derivatives traded in any member state;

"Products" to include all funds, certificates, notes, units, shares, interests and all other products investing in instruments and managed by an institution regulated by at least one member state;

Hereby further defines:
"Individual investor" to mean an individual, a sole proprietorship or the partners of an unlimited partnership;

"Corporate investor" to mean an incorporated entity owned by multiple individuals or other corporate entities with limited liability, including (but not limited to) mutual societies and cooperatives and entities pursuant to legislation by at least one member state;

"Institutional investor" to mean an institution with specialist functions in investment;

Hereby requires that:
  1. A competent authority of a member state must define, if desired in writing by the said investor, to be "sophisticated" if that investor can present evidence to meet the requirements below at the time of accreditation and repeating at all times thereafter until the said investor rescinds such evidence:
    1. An individual investor meets all requirements on personal and household wealth, income, education, experience and knowledge of financial instruments and products sufficient to invest in complex financial instruments and/or products;
    2. A corporate investor has a majority of its board of directors and/or officers (as defined by the member state) satisfying all education, experience and knowledge of instruments and products deemed necessary by the member state, and for the corporate itself to have such sufficient wealth and income as deemed necessary;
    3. An institutional investor is required to meet all regulated requirements imposed on it by the said competent authority at all times;

  2. Unless classified as a sophisticated investor based on the aforesaid criteria, a member state may not make available instrument(s) and/or product(s) to an investor if the said instrument(s) and/or products:
    1. Has features that may potentially result in a loss greater than the original investment amount;
    2. Invests in non-WA member states that the member state deems to offer insufficient protection to investors;
    3. Includes any other features deemed relevant by the competent authority of a member state with jurisdiction on the said instrument and/or product.

  3. Hereby further requiresthat:
    1. All sales documentation on the said instrument(s)/products must include appropriate disclosures concerning the risks of the said instrument and/or product(s) and any potential or actual material conflict(s) of interest between the institution and the investor;
    2. A member state may not prohibit the sophisticated investors of its state from purchasing products from an institution in another member state, provided that the said investor also meets the requirements to be deemed a sophisticated investor in the other member state;
A competent authority of a member state with jurisdiction is responsible for the implementation and interpretation this resolution, and for any penalties that may be imposed on any violations thereof.
Co-author: Imperium Anglorum
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Note: Only votes from TNP WA nations and NPA personnel will be counted. If you do not meet these requirements, please add (non-WA) or something of that effect to your vote.
Voting Instructions:
  • Vote For if you want the Delegate to vote For the resolution.
  • Vote Against if you want the Delegate to vote Against the resolution.
  • Vote Abstain if you want the Delegate to abstain from voting on this resolution.
  • Vote Present if you are personally abstaining from this vote.
Detailed opinions with your vote are appreciated and encouraged!

ForAgainstAbstainPresent
17301
 
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Overview
This proposal requires member states to indirectly block retail investors from being sold complex financial products, unless they can prove that they have the means to absorb potential losses and the knowledge to understand these products. It also requires sellers of complex financial products to properly disclose risks. Lastly, it prohibits member states from allowing their citizens to buy these products elsewhere, even if the product is not available in the original member state.

Recommendation
This proposal lets WA members tailor consumer protection rules regarding investments based on their own needs, while imposing a framework that should help promote international trade. We see this proposal as providing a sensible balance between (i) protecting consumers not deeply versed in finance from scams or mistakenly purchase overly complex products and (ii) allowing better resourced investors to purchase such products if they desire.

For the above reasons, the Ministry of World Assembly Affairs recommends a vote For the GA proposal at vote, "Sophisticated Investors Protocol".
 
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Present as I drafted this resolution. Happy to answer any questions. All errors are mine (and I think there's a couple of minor grammatical errors there).

IA gave a very succinct summary in the gameside discussion.
 
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Could you clarify what you mean by educational, experience and knowledge in clause 1.1 what standard should individuals be held to within that clause ?. On a further point would an individual have to meet all requirements as stipulated in clause 1.1, for example if someone has the experience but not the educational requirements would they be excluded ?. Further on clause 1.1 does this clause fit in with a free market given it is restrictive in nature ?.
Moving on to clause 2.1 again this clause is restrictive and forbids taking risks if you don't have the income to cover the loss. However is it really up to the WA or even member states for that matter to decide for their citizens what risks they can or cannot take with their own money. The stock market itself is inherently a risk and this proposal seems to be restrictive.
 
Elfnotonashelf:
Could you clarify what you mean by educational, experience and knowledge in clause 1.1 what standard should individuals be held to within that clause ?. On a further point would an individual have to meet all requirements as stipulated in clause 1.1, for example if someone has the experience but not the educational requirements would they be excluded ?. Further on clause 1.1 does this clause fit in with a free market given it is restrictive in nature ?.
Moving on to clause 2.1 again this clause is restrictive and forbids taking risks if you don't have the income to cover the loss. However is it really up to the WA or even member states for that matter to decide for their citizens what risks they can or cannot take with their own money. The stock market itself is inherently a risk and this proposal seems to be restrictive.
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I am not the author, but your answer on the first is that individual member states would define what the standards would be to meet the requirements of 1.1.

Regarding 2.1, my reading of the language is that only one certified as a qualified or "sophisticated" investor is allowed to make such large risks. Which may exclude some who are lower income and have less financial stake to begin with. However, Clause 1.1 allows individual member states to define a "sophisticated" investor and are welcome to create exceptions to allow one to be qualified as such if they are below certain income limits.

All that said, I am managing a heavy socialist, borderline communist nation that does not allow for private property ownership, so this largely doesn't apply much to us.

That said, I like seeing such restrictions and limits on capitalist ventures that can harm others, so For.
 
(Non-WA) I am entirely for this. The proposal is well-written, covering a complex topic in an easy-to-understand way.
 
Namwenia:
I am not the author, but your answer on the first is that individual member states would define what the standards would be to meet the requirements of 1.1.

Regarding 2.1, my reading of the language is that only one certified as a qualified or "sophisticated" investor is allowed to make such large risks. Which may exclude some who are lower income and have less financial stake to begin with. However, Clause 1.1 allows individual member states to define a "sophisticated" investor and are welcome to create exceptions to allow one to be qualified as such if they are below certain income limits.

All that said, I am managing a heavy socialist, borderline communist nation that does not allow for private property ownership, so this largely doesn't apply much to us.

That said, I like seeing such restrictions and limits on capitalist ventures that can harm others, so For.
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Your interpretation of 2.1 is as I intended. I wrote this from a fairly Natsov perspective, so I left a lot of the details to the individual states.
 
Kenmoria:
(Non-WA) I am entirely for this. The proposal is well-written, covering a complex topic in an easy-to-understand way.
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Thank you for your kind words, but this is still a tad short of quorum - I had a few telegrams coming back saying "what's this about", so it might be an issue that this topic is too complex for some of the delegates. Thankfully I took the day (Friday) off, otherwise would have been totally stuffed.
 
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Against.


There are no investors inside The State (Vexilia) and foreign investment has been banned since January 1, 2017.
The State has adopted, successfully, economic independence. An Investor-class (or similar) is legally impossible as all additional income above 10% of the average is taxed at a 100% Rate for the benefit of social programs that have seen the increase in overall quality of life for even the poorest citizens.

Investors have never helped life in Vexilia for over 200 years. The Comrades' Assembly along with the President refuse to entertain this resolution.


  1. Has features that may potentially result in a loss greater than the original investment amount
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How is this even made possible in a volatile activity such as investing?
I am willing to accept I perhaps misread or misinterpreted it.
 
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Vexilia:
There are no investors inside The State (Vexilia) and foreign investment has been banned since January 1, 2017.
The State has adopted, successfully, economic independence. An Investor-class (or similar) is legally impossible as all additional income above 10% of the average is taxed at a 100% Rate for the benefit of social programs that have seen the increase in overall quality of life for even the poorest citizens.

Investors have never helped life in Vexilia for over 200 years. The Comrades' Assembly along with the President refuse to entertain this resolution.
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I didn't think about this angle, because the last time I passed another resolution on investing, TCB voted yes on the grounds that anything that reins in big banks or protect consumers in general is good regardless of whether TCB's nations themselves have investing markets.

Tinfect pointed this out later so in my next resolution on investing I changed the wording slightly so there's no need for any communist nations to do anything other than to give a curt reply to other member states that its "competent authority (effectively, some chap in foreign affairs ministry etc) can offer no assistance as it does not (have a stock exchange)".


Vexilia:
Against.
How is this even made possible in a volatile activity such as investing?
I am willing to accept I perhaps misread or misinterpreted it.
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Anything involving inherent leverage, such as investing on margin, or contracts for difference (CFD) for foreign exchange.
 
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Magecastle:
For.
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Changing my vote to against. Most of the mandates seem to be circular; "You must regulate investment as it should be regulated, and deem people sophisticated investors if they meet your requirements to be sophisticated investors". Overall, this appears to do very little.

I do apologise to the author for not having noticed these problems until now.
 
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Magecastle:
Changing my vote to against. Most of the mandates seem to be circular; "You must regulate investment as it should be regulated, and deem people sophisticated investors if they meet your requirements to be sophisticated investors". Overall, this appears to do very little.

I do apologise to the author for not having noticed these problems until now.
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Yes it requires nations to set requirements for what constitutes "sophisticated investor" but not what the exact requirement is, and leaves it to nations. This is based on RNT, it isn't circular.

I disagree with the view that the WA has to set exactly what constitutes a "sophisticated investor" given differences in education and experience in financial products between states and the wider range of demographics across the multiverse.

"Authors" by the way.
 
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This resolution passed 9,800 (64.7%) to 5,343 (35.3%). This is Imperium Anglorum's 53rd resolution and 5th for that annoying, loud, fat, white bear. Accordingly, thread locked.
 
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