FSA Announces Action On Lehman Structured Products

by Robin Pilgrim, LawandTax-News, London

04 November 2009

The Financial Services Authority (FSA) wants to help investors who received unsuitable advice or misleading promotional material when they bought a Lehman-backed structured product, and to address issues in the wider structured products market with tough and wide-ranging action, it has announced.

Following a review of the marketing and distribution of structured products, particularly those backed by Lehman Brothers, 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 will address the detriment that this has caused for investors in Lehman-backed products and ensure all future structured products investors are treated fairly as follows:

• 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 following the FSA’s review of their promotional material and its subsequent discussions with the firms. 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;
• All firms that gave advice to investors on Lehman-backed structured products have been issued 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;
• All remaining investors that will not be contacted as a result of the plan managers’ administration, will receive guidance on steps they can take, including making a complaint, if they believe they were misled by product literature or received unsuitable advice;
• Enforcement will be initiated against three advice firms for giving unsuitable advice, and other advisers will be instructed to review past sales of Lehman-backed structured products and pay redress where appropriate;
• Clear guidance will be provided 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;

With regard to wider structured products market (non Lehman-backed), the FSA went on to reveal that:

• The largest sellers of other structured products will be asked to examine how they have sold these products in the past and, if necessary, 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
• There will be follow-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, stated that:

"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.

He concluded: "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."

Recommended