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Central bankers want financial products to be ranked like drugs before being sold

City A.M. Reporter
FINANCIAL products should undergo registration like medicines to curb investor access until safety is proven, according to the world&rsquo;s central bankers.<br /><br />Policymakers were alarmed at how opaque and complex securitised products collapsed in value as the credit crunch began unfolding from mid-2007, despite being highly rated. This sparked huge writedowns by banks that shattered investor conf dence.<br /><br />&ldquo;In a scheme analogous to the hierarchy controlling the availability of pharmaceuticals, the safest securities would, like non-prescription medicines, be available for purchase by everyone,&rdquo; the BIS, which acts as a forum for the world's central banks, said in its annual report.<br /><br />&ldquo;Next would be financial instruments available only to those with an authorisation, like prescription drugs; another level down would be securities available only in limited amounts to pre-screened individuals and institutions, like drugs in experimental trials,&rdquo; the BIS said.<br /><br />&ldquo;Finally, at the lowest level would be securities that are deemed illegal.&rdquo;<br /><br />A new instrument would be rated or an existing one moved to a higher safety category only after successful tests.<br /><br />&ldquo;Such a registration and certification system creates transparency and enhances safety,&rdquo; the BIS said.<br /><br />EU financial rules already require banks and brokers to ensure some clients meet a &ldquo;suitability&rdquo; test but these proposals go further.