UK: FSA Review Of Lehman-Backed And Other Structured Products: Findings And Actions

FSA announcement

FSA has, yesterday, announced a series of measures and actions it intends to take following its review of the marketing and selling of structured products by a number of providers, including those backed by Lehman Brothers. Please click here to see the FSA announcement.

The review followed agreement by FSA and the Financial Ombudsman Service ("FOS") to refer the issue of the mounting number of complaints relating to Lehman-backed products to the Wider Implications Procedure, which allows FSA to take wider actions to benefit investors as a whole (FOS only being able to deal with complaints on an individual basis), including regulatory action against firms and the publication of guidance for firms and investors alike.

Scope of the review

The review focussed on the design, marketing, distribution and advice provided in relation to these products and considered whether firms had properly understood, monitored and disclosed the risks associated with structured products, including, in particular, the risk to capital and the credit risk, whether adviser firms had properly assessed the suitability of such products for individual investors, and the systems and controls in place within firms to manage and monitor these practices and deal with the potential risks arising out of them.

Actions by the FSA

FSA found deficiencies both in relation to the marketing and selling of the structured products that it reviewed, as well as failings in firms' systems and controls and understanding of the products themselves. It has said that it is taking action to remedy the detriment already suffered by consumers, to ensure that in future investors are treated fairly, and to address issues in the wider structured products market. In particular FSA has said that:

Enforcement – FSA is referring three advice firms to Enforcement which have provided unsuitable advice and requiring others (both those who sold Lehman-backed and other structured products) to review past practice and pay redress where appropriate;

Complaints – It is providing firms that gave advice in relation to Lehman-backed structured products with templates to use when dealing with customer complaints;

Guidance – FSA is also providing guidance to all firms providing advice on structured products on its expected standards, including examples of good and bad practice;

Firms in administration – The administrators will write to investors holding Lehman-backed structured products in relation to compensation they may be entitled to from the Financial Services Compensation Scheme ("FSCS") and FSA will write to, and publish guidance for, all remaining investors of these firms in relation to the steps they may be able to take, including making complaints, if they consider they were misled by product literature or received unsuitable advice; and

Wider structured products market – In addition to requiring past sales reviews, FSA will undertake follow up assessments to ensure its advice and marketing literature standards are being met.

Particular areas of FSA focus

FSA's guidance on expected standards focuses on three key areas of concern:

Designing – including undertaking due diligence in relation to counterparties, stress testing products, and identifying and assessing key product risks both at the product design stage and throughout the term of the investment, taking contingency action when necessary, and ensuring that effective systems and controls are in place in order to monitor and manage the potential risks;

Marketing – including clarity as to where investors' money is invested, clearly explaining the counterparty risk, and prominently stating the risk to capital (if this applies); and

Advising – including consideration of customers' emergency funds, existing liabilities, timescale for investment and implications of fixed-term or early maturity products.


This is clearly an important issue for firms involved in the manufacturing and/or distribution of structured products, both in the past and going forward. Such firms should be aware of, and appropriately prepare for, the likelihood of increasing numbers of investor complaints both to firms and to FOS, enquires from FSA both in relation to past practice and the design and launch of new products, and possible action by investors (and possibly the FSCS in the future) via the Courts.

In relation to potential investor complaints and claims at least, there is no need for the majority of firms to be overly alarmed as investors in Lehman-backed products will still need to prove that they have actually been misled or misadvised in order to be eligible for compensation and the reality is that only a minority of firms will have been engaged in such practices (notably those firms which have already been put into administration as a consequence of the high numbers of complaints against them).

However the issue is clearly high on FSA's agenda and part of its new "get tough" approach in light of the financial crisis and the need to restore retail investor confidence in the financial sector. In this respect the key to responding to FSA enquiries will be an ability to demonstrate robust selling and marketing practices and effective systems and controls for products already launched and ensuring compliance with FSA's guidance for new products going forward.

We have extensive experience in assisting firms in relation to product design, FSA reviews and investigations, FOS and other proceedings, particularly in relation to structured products, and would be happy to discuss with you, and assist you in relation to, any of these areas.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 28/10/2009.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.