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Provider risk equally important as counterparty, says Barclays Wealth

Barclays Wealth director Colin Dickie says the demise of Keydata has highlighted the importance of understanding ‘provider risk’ when assessing protected investments.

Dickie says Lehman Brother’s failure centred concerns on counterparty risk but few warnings were given about provider risk.

He says Keydata’s enforced move into administration and the unravelling of its financial affairs has emphasised the need for better understanding of the roles the various associated parties play and what protection is available at each stage of the product development and marketing process.

He says: “It is a sub-optimal situation when a product’s promoter, provider, administrator and issuer are all different companies, a situation that can also be found in the fund arena. It is little wonder that some protected investments are perceived to be overly complicated.”

Dickie says the FSA recently concluded a consultation period on the regulatory status of structured products and included a number of proposals to improve the hygiene factor around the assembly of structured products.

He says: “In my view the industry should embrace any change which improves the overall transparency and therefore the reputation of products which could, and should, have a much bigger role to play in investor portfolios.”

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