UK watchdog warns banks over complex retail products

By

Britain's financial watchdog has told banks they are failing to meet standards on selling complex investment products and may have to compensate some customers, signaling that enforcement action could be on the cards.

The Financial Conduct Authority (FCA) published a review of structured products which are created by banks and range from alternatives to cash deposits to complex investments linked to multiple financial assets or indices.

Regulators released guidance in 2012 to improve standards in a market European Union regulators estimated at 59 billion euros in Britain at the time.

"Our review found some firms are falling below the standards we expect in their approach to the design, manufacture, packaging and distribution of structured products," the review published on Thursday said.

The UK Structured Products Association, a trade body whose members include banks and others who create and sell the products, had no immediate comment.

All the firms that were assessed will be asked to explain how they will ensure that customers are treated fairly when offering them new products, the FCA said.

Some firms have been asked to determine if customers have been harmed by existing products.

"It is possible that this will result in further remediation work by these firms and could lead to redress for some customers," the FCA said.

"It could also lead us to consider the use of other regulatory tools," it added. The watchdog declined to elaborate but lawyers said banks should be on their toes.

"This is yet another clear demonstration of the FCA's determination to uproot inherently unfair financial products in the UK," said Etay Katz, a financial services lawyer at Allen & Overy. "The language suggests swift supervisory and enforcement actions will now follow."

The FCA was set up partly to be more active in defending consumers after a string of mis-selling scandals.

A survey of 384 retail customers showed they were struggling to understand structured products and frequently overestimated potential returns, the FCA review said. Firms must make better efforts to match the design of the product to their customers' needs.

The European Union's markets watchdog, the European Securities and Markets Authority (ESMA), said in 2013 it was concerned about possible risks to consumers from the products as they may not be able to understand them.

ESMA has said that Britain's structured products market totaled 59 billion euros at the end of 2012 or 8 percent of the EU market.

Tags
FCA, Britain, European Union
Join the Discussion
More News
Alexandrea G. Ring

Pregnant Indiana Mother 'Threw' Her Baby Daughter After She Cried, Police Say

A Teen Girl Has Just Become the Youngest Person to Pass the California Bar Exam. The Previous Record Holder Was Her Brother

Florida Mom Accused of Drowning Daughter in Bathtub, Then Chasing

Florida Mom Accused of Drowning Daughter in Bathtub, Then Chasing Witnesses Around Apartment with a Hammer

Raynaldo Riviera Ortiz Jr.

Texas Doctor Who Poisoned Patients With Tainted IV Bags Learns His Fate

Real Time Analytics