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FSA’s Dewar warns of rising retail bond risk

’Authorised firms will need to fully explain to their retail clients the potential risks associated with buying corporate bonds’

The FSA has warned of the risks associated with increasing retail access to the bond markets.

In a speech about the regulatory challenges and developments in the bond markets at the Euromoney bond investors’ congress in London last week, FSA managing director of risk Sally Dewar commented on the launch of the London Stock Exchange’s new electronic order book trading platform for corporate and UK Government bonds in response to inv-estor demand.

’If you do not know what you are doing in the bond or fixed-interest area, I would say it is almost as risky as equities’

She said: “While we see this as a positive development, with the potential to bring benefits to both firms and consumers, there are also risks associated with increasing retail access. For example, authorised firms will need to fully explain to their retail clients the potential risks associated with buying corporate bonds.”

However, she added that the introduction of market-makers and the continuous availability of trading data during trading hours will make pre-trade information significantly more transparent.

Alan Steel Asset Management consultant Alan Adam says: “I do not think the warning is strong enough.

“If you do not know what you are doing in the bond or fixed-interest area, I would say it is almost as risky as equities, if not more, especially given where we are in the current investment cycle.”

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