View more on these topics

FSA sets out final guidance on structured products

The FSA has set out details of how structured products should be stress-tested.

Today’s final guidance from the FSA follows draft guidance in November triggered by a market review which found weaknesses in the way firms are designing and approving the products. The guidance applies to the design of structured products and the after-sales process.

The review was carried out between November 2010 and May 2011 and focused on seven major providers of structured products, responsible for about half of the structured products in the UK retail market by volume and value.

In the final guidance, the regulator says it is taking action with those firms where it identified problems, which includes requiring significant change to product governance arrangements where necessary.

The FSA stated in its draft guidance that firms should stress-test new products to ensure they deliver fair customer outcomes. This should involve testing the products to establish how they would perform under a variety of conditions, including a failure of the firm’s systems.

The regulator has set out in its final guidance more details of structured product stress-testing . It says that stress tests should be built in to the product approval process, with defined triggers for when they are, or are not, to be applied. They may not need to be applied in very simple repetitions of a recent product.

The regulator says stress-testing should be forward-looking as well as back-testing and analyse the resilience of the product over its proposed term.

Scenario testing of the products includes internal risks, such as the failure of the firm’s systems or larger than expected volumes, and external risks such as market stresses, interest rates and currency risks.

The regulator says where there is a value for money test, such as a comparison with cash, “there should be a sufficiently demanding hurdle rate to reflect the opportunity cost of the ‘next best’ use of the customer’s money.”

Providers should establish the probability of stressed outcomes that are likely to be acceptable to the target audience.



NAPF says pension funds will not go for 100-year bonds

The National Association of Pension Funds says the Government’s proposal to launch 100- year bonds is unlikely to be of interest to pension funds, which tend to prefer 30 to 50-year index-linked debt. Last week, the Treasury floated the idea of issuing “superlong gilts” which would enable the Government to borrow money over the long […]

‘Lack of state pension clarity will hit advice’

IFAs’ ability to give sound advice on auto-enrolment will be undermined if the Government does not clarify the future of the state pension, says the work and pensions select committee. In July, the Government set out plans for a flat-rate pension but it has not yet published detailed proposals. In January, Labour suggested the Treasury […]

Budget 12: VCT and EIS annual investment limit changed to £5m

The annual investment limit for a VCT and EIS investing in a qualifying company has been revised down to £5m, after it was announced in last year’s Budget that it would be increased to £10m. In last year’s Budget statement, Chancellor George Osborne announced the Government would raise the annual limit for qualifying investment companies […]


FSA censures two Glasgow credit unions

The FSA has publicly censured two Glasgow based credit unions for making large loans to a non-member and making loans to directors on terms better than those available to members. Pollok Credit Union made a series of loans to a trust it had set up to manage a local post office and day-care centre. The […]


News and expert analysis straight to your inbox

Sign up


There is one comment at the moment, we would love to hear your opinion too.

  1. Lindsay Bateman 23rd March 2012 at 5:00 pm

    Long overdue – now let’s see those investors in badly marketed and ill-conceived so-called “100% principal protected” structured products recompensed, particularly where Lehman’s was the (often unnamed) counterparty . Not all jurisdictions have taken the appropriate action to protect investors, despite clear failings in both product literature and product design.

Leave a comment


Why register with Money Marketing ?

Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

News & analysis delivered directly to your inbox
Register today to receive our range of news alerts including daily and weekly briefings

Money Marketing Events
Be the first to hear about our industry leading conferences, awards, roundtables and more.

Research and insight
Take part in and see the results of Money Marketing's flagship investigations into industry trends.

Have your say
Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

Register now

Having problems?

Contact us on +44 (0)20 7292 3712

Lines are open Monday to Friday 9:00am -5.00pm