The FSA said that a review of structured products backed by Lehman Brothers had found the sales advice was ??unsuitable? or ??unclear? in more than two-thirds of cases.Up to £110m was invested in these products by 5,600 retail investors in the UK. However, an estimated £35bn has been invested in structured products in total, through 575 advisory firms, the regulator said. If a review now under way into non-Lehman backed products finds similar levels of unsuitable advice, holders of products worth about £24bn may be entitled to redress.
While no money is thought to have been lost yet on structured products besides those backed by Lehman, the regulator said there was evidence that investors were wrongly advised.
In a sample of sales of them made by 11 firms, the regulator identified ??significant levels of unsuitable advice? at nine of them. In addition, there was a ??widespread failure? by advisers to adequately disclose the ??counterparty?? risk?, and explain that the bank providing the underlying capital protection for a structured product could fail. Three of these advice firms face enforcement action, and 10 have been ordered to review all sales.
As a result, a further six leading advisory groups ?? which account for more than 50 per cent of all UK structured products sales ?? have been asked to examine their past sales and promotions, and report back to the FSA by January on whether their advice was appropriate. If it is not, investors will be entitled to seek financial redress.
In the past two weeks, three managers of structured products backed by Lehman Brothers ?? NDF Administration, Defined Returns Limited and Arc Capital and Income ?? have been forced into administration, after it became clear that potential legal claims over inadequate risk warnings would render them insolvent. This has enabled investors to seek compensation from the Financial Services Compensation Scheme.
