The U.K. Financial Services Authority (FSA) said this week that it plans to widen the scope of its Structured Products Review to cover the financial advice sector.
This places three firms in enforcement as a result of advice relating to Lehman Brothers-backed plans.
The decision comes in the wake of product provider Arc Capital & Income being placed into administration. The FSA has urged all large providers to review their practices and pay investor compensation where it is due.
"The FSA found significant advice failings on Lehman-backed products in most of the financial advice firms sampled, as well as serious deficiencies in the marketing literature," the regulator said in a statement.
The FSA’s actions have been largely welcomed as they throw a possible lifeline to those investors still uncertain about their fate following the collapse of the former Wall Street giant last year.
“There has been considerable speculation that the FSA’s announcement will pave the way for investors to receive financial compensation for Lehman’s-related losses,” said Andrew Wilkins, executive director of Catalyst Investment Group. “Such claims follow the assertion that if advisers are found guilty of misselling Lehman’s-backed plans, end-investors will have greater flexibility to seek financial redress. Yet the likely reality is that compensation will remain a difficult and drawn-out process for investors.”
However, Wilkins added that this latest development is important in strengthening the links between providers and advisers, which has already begun in earnest.
“Providers have recognized the need to qualify claims relating to headline returns, offering much greater information about counterparties and the structure of their investment plans,” he said. “In turn, financial intermediaries have become more adept at assessing and communicating the features of products and their use to investors. This should be welcomed since a need remains in the market for investors to be able to diversify and hedge returns in the future through the use of structured products.”
