VIDEO | Suitability is increasingly seen as a crucial factor throughout the entire investment journey, from pre-trade to post-trade, according to insights shared at PostTrade 360° Nordic 2024. No longer limited to protecting investors before they make financial decisions, suitability now plays a key role at every stage, as financial institutions navigate complex regulatory challenges and evolving trends. The topic was explored in-depth during the session “Suitability: From regulatory challenges to the latest trends,” where Kathelijne Marritt-Alers, senior product manager at SIX Financial Information, highlighted the growing importance of ongoing monitoring and compliance in today’s financial landscape.
Traditionally, suitability has been regarded as a pre-investment responsibility, focused on ensuring that the investor’s needs and risk tolerance are understood. However, Marritt-Alers argued that suitability’s role extends far beyond the initial decision to invest. “We often think of suitability as something to consider only before an investment is made,” she said. “But my argument is that suitability matters at every stage of the investment journey.”
She explained that errors made at the pre-trade stage have long-term consequences, particularly in the post-trade space. Continuous monitoring is essential to ensure that suitability is maintained, as market conditions and regulations evolve.
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Regulatory compliance
Marritt-Alers highlighted the regulatory hurdles that institutions face, with a particular focus on the complications posed by sanctions. “Regulations are the elephant in the room,” she said, acknowledging how compliance can be daunting. She pointed to the Basel framework and sanctions as examples of how regulatory shifts can significantly influence investment strategies.
Using the example of sanctions that followed the Ukraine war, she demonstrated how geopolitical events can quickly complicate compliance efforts. “Sanctions can vary across jurisdictions, and you might find yourself on the wrong side of a regulation just by missing a key date,” Marritt-Alers explained. The fast pace at which sanctions are implemented often leaves institutions scrambling to respond within tight deadlines.
Varied regulatory treatment
Another key area of focus was digital assets, where Marritt-Alers illustrated the differences in regulatory treatment for various cryptocurrencies. “You might assume that Solana and Bitcoin would be regulated the same way, but that’s not the case,” she pointed out. Solana, for example, falls under the new Markets in Cryptoassets (MICA) regulation, while Bitcoin, being fully decentralised, is only covered by the upcoming Cryptoasset Reporting Framework (CAF).
This divergence in regulatory treatment extends to other instruments tied to digital assets, with many still governed by older frameworks like MIFID II. “It’s critical to understand that not all digital assets are subject to the new regulations, and that could affect how they’re handled,” Marritt-Alers emphasised.
Tax implications
Concluding the session, Marritt-Alers discussed how seemingly routine corporate actions can turn a safe investment into a “toxic” one overnight. She shared the example of Six Flags, which became subject to strict tax reporting requirements following a merger. “What was a perfectly fine investment suddenly required extensive US tax filings due to a corporate action,” she explained.
Her message to attendees was clear: suitability is no longer just a pre-trade consideration but a dynamic, ongoing concern that requires constant attention to regulatory shifts, tax implications, and corporate actions.
Speaker:
Kathelijne Marritt-Alers, Senior Product Manager, Financial Information, SIX Financial Information
Hosted by SIX.
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