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FSA wants income bond performance updates

High-income bond providers are to be forced by the FSA to provide annual performance updates to consumers.

The move comes after the regulator had highlighted high-income bonds as an area of serious concern last December.

The move is relatively unusual for the FSA and follows turbulence in markets which has seen some investors lose all their capital in bond investments.

The only other products currently requiring regular updates are endowments and pensions.

The FSA says it has asked for bond updates primarily because 70 per cent of the £5bn invested in income bonds have been direct off the page by consumers who may not understand them.

The FSA also wants providers to improve their initial product literature to clearly spell out the risks involved in the products.

Providers will have to explain how the predicted rate of return will be achieved and what risks are involved if there is a significant market downturn.

A guidance note sent to providers last week by the FSA spelt out the new requirements, including the December announcement that it was formally reviewing some bond sales.

The regulator says it expects enforcement action to result from the review.

It says it has taken the action without consultation because the immediacy of the situation.

Spokesman Rob McIvor says: “We do expect enforcement cases to result from the reviews we are currently carrying out but it is too early to say who or how much.”

Bates Investment Services senior investment adviser Kerry Nelson says: “This is a positive step but I still do not think it is going to protect consumers fully because it is difficult to express the ups and downs of these products in a written warning.”

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