FCA Publishes Structured Products Review

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.