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Regulator accused in structured fiasco

Leading advisers have accused the FSA of failing to learn from the mistakes of the past as providers struggle to ascertain the potential losses of structured products backed by Lehman Brothers.

The criticism comes as Treasury Economic Secretary Kitty Ussher assured worried NDFA investors at the Labour Party conference in Manchester that the Government will investigate the matter.

Nexus Independent Financial Advisers director Kerry Nelson, one of the first voices to warn of the dangers of structured products before the precipice bond debacle, says the regulator must take responsibility for failing to learn from past mistakes.

She says: “We see this time and time again, you can highlight something and say this could be an issue, let’s do something about it and then it is all buried again until next time it rears its ugly head. It is not a way to regulate an industry.”

Nelson says an industry-wide voluntary code would help communicate investment risk to advisers and clients.

SimplyBiz chairman Ken Davy says: “We have to wonder what the FSA has been doing in allowing this lack of transparency to continue, especially considering what has happened in the past. The FSA have either been asleep on the job or the providers distributing these products have pulled the wool over their eyes.”

Speaking at a fringe event at the Labour conference this week, Ussher was pressed on the issue of Lehman-backed structured products by a worried investor.

Ussher told Paul Wheeler, 52, who took out a £50,000 NDFA capital secure fixed growth plan, she would look into the matter and asked for information about how many people could be affec- ted and how the products were marketed.

Advisers have expressed concern that losses will not be covered by the Financial Services Compensation Scheme as the product provider has not gone bust.

Last week, addressing an FSA conference, IMA chairman Robert Jenkins warned that structured products were “largely free from regulatory oversight” and asked “is someone asleep on the watch?”

Structured products from NDFA, DRL, Meteor and Arc are among those affected by Lehman’s collapse. An FSA spokeswoman says the FSA does not regulate structured products but, as a matter of course, regularly monitors structured products offered to retail investors by advisers.

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