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Structured Products – FCA Thematic Review of Product Development and Governance

In March 2015 the Financial Conduct Authority (FCA) published a thematic review of product development and governance of the structured products market1 (the FCA Review).

This review found that some firms are falling below the standards the FCA expects in their approach to the design, manufacture, packaging and distribution of structured products.

Key messages from the FCA's Review include:2

  • Retail consumers struggle to understand and compare the relative merits of structured products and features driving potential returns. It is essential that firms take steps to bridge this gap. 
  • Firms' senior management must do more to put customers at the forefront of their approach to product governance. This should begin with the identification of a clear target market during product design and then inform each subsequent part of the product development and distribution strategy. 
  • Structured products should have a reasonable prospect of delivering economic value to customers in the target market.
  • Firms must be able to determine and evidence this via robust stress testing as part of the product approval process. Products that fail this process should not be manufactured nor distributed. 
  • Firms need to provide customers with clear and balanced information on each product and any risks. This is particularly important for information explaining the likelihood of potential investment returns and any risk to the customer's capital. 
  • Manufacturers need to strengthen the monitoring of their products. This includes ensuring distributors have enough information about the manufacturer's product to sell it appropriately and checking that each product is being distributed to its target market. 
  • Firms need to do more to ensure fair treatment of customers (including best execution where relevant) throughout the lifecycle of a structured product.

The FCA is planning on taking the following action: 

  • All of the firms assessed will be asked to explain how they will ensure the fair treatment of customers for the new structured products they bring to the market. 
  • Some firms have already been asked to conduct further work to determine whether any of the issues identified may have affected existing products. These firms have been asked to assess their historic approach to product design against the FCA's Principles for Businesses, rules and guidance,3 and determine whether customers in existing products may have lost out as a result of any deficiencies in their approach. It is possible that this could result in further remediation work by these firms, including redress for some customers and could lead the FCA to consider use of other regulatory tools.

The FCA states that it considers that its existing rules and guidance provide a clear framework for firms to develop products in a way that supports the delivery of good consumer outcomes and is consistent with the approaches set out by IOSCO4 and ESMA.5

In the FCA's view the regime is clear; the problem appears to be one of firms not meeting the requirements. The FCA is increasingly taking a strongarm approach to product governance and intervention6 and all regulated firms involved in the structured product market (whether manufacturing, packaging and/or distributing) should carefully consider the FCA Review, alongside the FCA's Principles, rules and guidance and satisfy themselves that they are meeting regulatory requirements and that their approaches support the delivery of good consumer outcomes. 

It is vital the firms do not ignore the findings of this review as the FCA warns that if their concerns are not addressed, they may take further regulatory action. Firms should also consider the impending requirements on firms manufacturing and distributing structured products in the PRIIPs Regulation7 and MiFID II8 to ensure they are able to comply with these additional requirements in good time.

See page 5 of the FCA Review.
Specific guidance was published in 2012: FG12/09, Retail Product Development and Governance – Structured product review (See: and in the Responsibilities of providers and distributors for the fair treatment of customers (RPPD) (See: .
Regulation of Retail Structured Products – Final Report (See:
ESMA: Structured Retail Products – Good practices for product governance arrangements. (See:
Note for example, recent Restrictions on the retail distribution of Contingent Convertible Instruments (See:; or the Restrictions on the retail distribution of unregulated collective investment schemes and close substitutes (See:; and the recent enforcement actions referred to on page 20 of the FCA Review.
Regulation (EU) No 1286/2014.
Directive 2014/65/EU.
Legal and Regulatory Risk Note
United Kingdom