FSA takes action to help investors with Lehman-backed structured products
27th October 2009The Financial Services Authority (FSA) has today announced tough and wide-ranging action to help investors who received unsuitable advice or misleading promotional material when they bought a Lehman-backed structured product, as well as measures to address issues in the wider structured products market.
This follows an FSA review of the marketing and distribution of structured products, particularly those backed by Lehman Brothers, to achieve the best outcome for all investors who were affected by the insolvency of the firm.
The FSA found significant advice failings on Lehman-backed products in most of the financial advice firms sampled, as well as serious deficiencies in the marketing literature provided by a number of the plan managers selling these products.
As a result, the FSA is taking direct action to address the detriment this has caused for investors with Lehman-backed products and robust steps to ensure all future structured products investors are treated fairly, including:
Lehman-backed structured products- following the FSA's review of their promotional material and its subsequent discussions with the firms, three plan managers that packaged and marketed Lehman-backed structured products - NDF Administration (NDFA), Defined Returns Limited (DRL) and Arc Capital and Income plc (ACI) - have gone into administration. As a result, investors who purchased Lehman-backed structured products through these firms may be entitled to compensation from the Financial Services Compensation Scheme (FSCS). The firms' administrators are contacting investors with information on how this affects them;
- issuing all firms that gave advice to investors on Lehman-backed structured products with a template they should use to deal with customer complaints - it outlines the criteria the FSA expects them to use to assess the advice they gave to ensure investors are treated fairly and consistently;
- writing to all remaining investors that will not be contacted as a result of the plan managers' administration, and publishing guidance, to help investors consider what steps to take, including making a complaint, if they believe they were misled by product literature or received unsuitable advice;
- referring three advice firms to enforcement for giving unsuitable advice, and instructing other advisers it looked at to review past sales of Lehman-backed structured products and pay redress where appropriate;
- providing clear guidance to all firms advising on structured products (both those backed by Lehman Brothers and other firms) on the standards it expects them to meet, including examples of good and poor practice it identified during its review;
- writing to the largest sellers of other structured products, asking them to examine how they have sold these products in the past against the standards reiterated by the FSA today and, if necessary, to review past sales and provide investor redress where appropriate, as well as change their approach for future advice and sales;
- in the course of 2010 the FSA will undertake follow-up assessments to ensure that firms are meeting its advice standards; and
- following-up with plan managers where the FSA had concerns about their marketing of non Lehman-backed structured products, to assess whether firms' current literature meets its requirements, and setting out the standards it expects firms to meet when designing and marketing structured products.
Dan Waters, the FSA's director of conduct risk, said:
"We are committed to ensuring that retail financial services markets deliver fair outcomes for consumers. The focus of our review has been to achieve the best possible outcome for as many people as possible that invested in structured products backed by Lehman Brothers. This is a hugely complex area given the number of different firms involved, and there is no one-size-fits-all solution for these investors.
"However, given the failings we have come across in the marketing and selling of these products, today we are setting out a package of robust measures to help those who have lost money. We are also taking decisive action to address issues in the wider structured products market to ensure that all future investors will be treated fairly - and we will not hesitate in taking action if firms do not take sufficient steps to respond to our concerns."
