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The FSA Files: Regulator's struggle to monitor structured products

The FSA Files: Regulator's struggle to monitor structured products

The Financial Services Authority (FSA) has complained it is unable to monitor the true size and risk posed by the structured product, and that it is forced to rely on Google to monitor the market due to holes in its product sales data.

The regulator said it currently only collects information on structured capital at risk products due to a lack of definition over what constitutes structured products. The internal report, secured after a Freedom of Information request, reveals FSA concerns about the recent trend to use higher risk asset classes like life settlements in structured products.

'This lack of a standard definition makes it very difficult for us to gather any meaningful information from firms to allow us to monitor the market and the changes within it,' stated the FSA report. 'Identifying the population had to be through a mixture of Google searches, discussions with conduct risk division financial promotions, who are temporarily monitoring a website which details new product launches. This is a very inefficient method and means we do not have a way to monitor the true size of the market and the level of risk this poses to our objectives.'

The FSA was concerned that poor communication between structured product providers and IFAs raised the risk of unsuitable advice in the investigation, which was prompted by the collapse of providers NDFA, Arc and DRL in 2009.

‘This project has identified a weakness in the communications between products distributors and the IFA, which can result in an increased possibility of clients receiving unsuitable advice,’ stated the FSA in the report. The FSA noted that its conduct risk division would address this concern with a project examining the sale process for unregulated collective investment schemes running from provider to adviser.

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