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FSA&#39s structured probe uncovers &#39magic circle&#39

The FSA and Financial Ombudsman Service suspect that they have discovered inappropriate collaboration between providers and IFAs as part of their work into structured products, according to the ABI.

Money Marketing has seen an ABI circular revealing that the FSA and FOS believe that providers collaborated with IFAs and stockbrokers to sell products on the basis of volume rather than suitability. This, along with other incidences of poor practice, has prompted the regulator to conduct visits and send letters to a small number of insurers and banks that it suspects of involvement.

The circular also reveals that losses from structured products have mounted to between £1.5bn and £2bn and that both the FSA and FOS believe that their work could lead to legal challenges against them and further IFA insolvencies.

The FSA&#39s visits, some of which have already taken place, will, in addition to collaboration, focus on the advice and practices of tied salesforces and the misdescription in marketing literature of the banks which provided the underlying derivatives. The FSA has found some firms cited a household name as the investment bank when a lesser-known overseas company was the real backer.

The circular also discloses that, on the basis of enquiries with around 20 IFA companies and an assessment of current FOS complaints, the FSA is widening its scrutiny of distributors. The move follows the unearthing of evidence of poor practices, including the use of direct marketing mailings in face-to-face client contact in a way the FSA believes constitutes advice.

The ABI&#39s circular, sent out to members last week, says the FSA is focusing on: “Advice and sales practices in tied outlets; misdescription in consumer and IFA literature of who was standing behind the product; collaboration between providers and individual IFAs and stockbrokers to provide and sell products to the distributors&#39 client base. These agreements appear to be based on volume rather than suitability.”


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