Structured investments specialist Chris Taylor has called for the structured investment industry to stop using the word “guaranteed” in its marketing material.
Taylor, who recently set up a specialist consultancy practice The Investment Bridge, says the industry has an opportunity to “exceed the regulator’s expectations through highlighting and suggesting better practices that the industry could proactively and collectively adhere to”.
The FSA’s consultation paper, CP11/11, proposes the introduction of guidance over the use of words like ‘guaranteed’, ‘protected’ and ‘secure’ in financial promotions.
Taylor says the use of the word guaranteed lacks necessity, merit, integrity or justification. He says it would have been easy for the structured industry to simply agree with the FSA but says that more can be done.
He says: “If the industry chooses to provide such a simplistic answer it will, to my mind, mean that the industry itself passes up a significant opportunity to exceed the regulator’s expectations through highlighting and suggesting better practices – that many providers are already following today – that all providers could be encouraged to adopt and adhere to, either through the industry universally accepting what is clearly best practice of its own accord, or through more prescriptive regulation, rules and/or guidance’’.
Taylor says few provider now use the guaranteed term, however he says that given the ‘current regulatory latitude to use the term” it would be difficult for any provider to reconcile use of the word when counterparty risk always exists.
Taylor says it is bizarre that banks and building societies do not describe a normal interest paying deposit accounts as guaranteed, but some do when it comes to stock market linked structured products, where he says that regardless of the risk to capital being identical, interest usually depends on stock market or other asset class performance.
He says: ‘I see no reason for the regulator to continue to allow what now appears to be the scope for nothing more than a distinct minority of firms to exploit what must surely be seen as light touch regulation in respect of deposits.’’