Structured products are rising in popularity and we are concerned that the growing number of structured product sales, as well as increasing product complexity, is placing a strain on firms’ systems and controls. A lack of robustness in firms’ product development and marketing processes can increase the risk of poorly designed products and lead to miss-selling ,or miss-buying by consumers. The environmental drivers of risk remain broadly the same as those outlined in our Retail Conduct Risk Outlook 2011(the RCRO)2, although the risks of slow economic growth have increased since the RCRO was published in February 2011. Many asset classes are still volatile. Consumers respond to volatility by seeking security, but are constrained by very low or negative real yields on traditional savings and investment products. This leads consumers to be attracted by products that claim to offer a degree of security but which promise returns that outperform cash. Firms have responded by manufacturing and marketing products that aim to deliver better-than-cash returns. In many cases, both the benefits and the risks of these products are opaque.
In this environment, we are consulting on new guidance which sets out clear expectations about product development and how firms bring to market retail structured products. This focus on the earlier stages of the product life-cycle, in line with the new more interventionist approach to regulation that the Financial Conduct Authority (FCA) will adopt, demonstrates that we are already seeking to identify potential consumer detriment at a far earlier stage.3In doing this, we are continuing on the same path as the recently published joint FSA and Office of Fair Trading (OFT) document, Payment Protection Products. We have published separately a Discussion Paper and a subsequent Feedback Statement on the broader issues surrounding product intervention.5In the Feedback Statement, we set out ‘Next Steps’ which include taking forward a single set of rules and guidance on product governance, for example, turning some or all of our previously published material on treating customers fairly(TCF)and the responsibilities of product providers and distributors6into rules, and considering additional interventions going forward.`