By Daniel Hunter
The Financial Services Authority (FSA) has today (Friday) published its final guidance on the development and governance of retail structured products.
Firms should consider the following when designing structured products and dealing with the after sales process:
- 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.
As identified in the FSA’s recent Retail Risk Conduct Outlook, consumers continue to struggle with the effects of a slower economy, low interest rates and poor returns on investments. Given this environment, consumers are increasingly attracted to products that claim to offer a degree of security but promise to deliver returns that outperform cash. However, in many cases the benefits and risks of these products are opaque and the potential for mis-selling or mis-buying is high.
Therefore today the FSA has provided firms with guidance on how best to develop structured products to meet clients’ needs and ensure a robust post-sale process.
In October 2009, the FSA published ‘Treating Customers Fairly — Structured Investment Products’ and identified the potential risks of structured products to consumers. From November 2010 to May 2011, the FSA conducted a review of seven structured product providers, responsible for approximately 50% of structured products in the UK retail market by volume and value. In November 2011, the FSA reported on the review and consulted on new guidance. Today the FSA publishes its final guidance.
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