FSA Publishes Structured Products Retail Guidance
Monday, November 07, 2011

The United Kingdom’s Financial Services Authority (FSA) has published further guidance for financial institutions when developing new structured products which they want to market to consumers.

In a review that was conducted between November 2010 and May 2011, the FSA assessed seven major providers of structured products, responsible for approximately 50% of structured products in the UK retail market by volume and value.

The review found that while there had been some improvements, weaknesses remain in the way institutions are designing and approving structured products - increasing the risk to consumers. It was said that firms tended to focus on their own commercial interests rather than consumer needs.

Following this review, the FSA is now publishing guidance that institutions should consider when designing structured products and dealing with the after-sales process. It emphasized that much of the guidance would also be relevant to other retail products.

The FSA recommended, above all, that firms should identify the target audience and then design products that meet that audience's needs; pre-test new products to ensure they are capable of delivering fair outcomes for the target audience; ensure a robust product approval process is in place for new products; and monitor the progress of a product throughout its life cycle.

Further and more detailed guidance for firms has been outlined with the publication, and the guidance is open for consultation until January 11, 2012.

Nausicaa Delfas, FSA's head of conduct supervision, said: "Structured products are rising in popularity in today's low interest rate environment, and we are concerned that the growing number of structured products, as well as increasing product complexity, is placing a strain on firms' systems and controls.”

"We want firms to consider the issues we raise in this publication, compare their product governance to the guidance we set out and address any areas for improvement,” she added. “A lack of robustness in a firms' product development and marketing processes can increase the risk of poorly-designed products and lead to mis-selling. This work is a further step towards intervening earlier in conduct regulation and demonstrates that the FSA is already seeking to identify potential consumer detriment at a far earlier stage."