FSA has published for consultation guidance for firms to take into account when developing new structured products. It includes within structured products:
- structured capital-at-risk products (SCARPs);
- structured non-capital-at-risk products (non-SCARPs); and
- structured deposits.
FSA has reviewed seven major providers of structured products and found weaknesses in the design and approval process. It is concerned firms act for their own commercial interests rather than for the benefit of customers. The guidance recommends measures firms should take to:
- identify the target audience, and design products that meet the audience's needs;
- stress-test new products to check they deliver fair outcomes for that audience;
- make sure the product approval process for new products is robust and consider what counts as a "new" product for these purposes by including certain changes to existing products; and
- monitor the product's process once sold.
This paper takes into account the interventionist approach the Financial Conduct Authority (FCA) intends to apply, and is consistent with the FSA and OFT proposals on payment protection products. It also notes the product intervention initiative, which will result in further rules, but in this paper concentrates on key governance issues. The draft guidance sets out examples of good and poor practice in several areas, but focuses on product providers and not the distribution chain. However, it comments that some providers tend to leave too much to distributors to do. FSA asks for comment by 11 Janaury 2012. (Source: FSA Consults on Structured Product Governance)