Structured Products

FCA Publishes Structured Products Review

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The UK Financial Conduct Authority (“FCA”) has published a review of structured product governance, in which it has criticized the ways in which instruments are developed and sold. The review contained six key points:

  1. Retail consumers generally struggle to understand the relative merits of structured products and the factors driving potential returns, finding it difficult to compare alternatives and to make full use of analytical information. The FCA has claimed that it is up to firms to remedy this.
  2. Firms’ senior management must do more to put customers at the forefront of their approach to product performance, identifying a key target market during product design, which should then inform each subsequent part of product development and distribution.
  3. Structured products should have a reasonable prospect of delivering economic value to customers in the target market, to be determined and evidenced by robust stress testing as part of product approval.
  4. Firms need to provide customers with clear and balanced information on each product and any risks.
  5. Manufacturers need to strengthen the monitoring of their products, including ensuring distributors have enough information about the manufacturer’s product to sell it appropriately.
  6. Firms need to do more to ensure fair treatment of customers throughout the lifecycle of a structured product.

While these points are quite broad, the FCA has warned that failure by firms to improve in respect of the above may lead to new binding rules.

District Judge Reaffirms Denial of Motion to Dismiss RMBS Repurchase Suit

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On January 7, Judge Alvin K. Hellerstein of the United States District Court for the Southern District of New York denied WMC’s motion to reconsider the denial of its motion to dismiss in light of the intervening New York state appellate decision in ACE Securities v. DB Structured Products (covered in the January 6, 2014 edition of the Week in Review).  Judge Hellerstein had relied on the trial court decision in ACE as support for his original ruling that the plaintiff trustee’s claims accrued when WMC refused to repurchase loans that allegedly breached certain representations, not when the representations first were made.  WMC moved to reconsider after the First Department; Appellate Division reversed the trial court in ACE and held that breach of contract claims accrue when the representations are made.  Judge Hellerstein denied the motion, stating that while he had read the ACE appellate decision, it did not change his view that “the contract was breached not at the time of closing but at the time of failure to cure.”  Order Denying Motion to Dismiss.  Order Denying Reconsideration.