Glossary

Top 5 events that shook the industry in 2012 … according to you! Part 1: Regulation.

 SRP Insider, 02 January 2013

Top 5 events that shook the industry in 2012 … according to you! Part 1: Regulation.

Join us as we take stock of the most eventful developments in the structured products industry by compiling a top 5 of our most popular content for: Regulation, Product and Provider related, People Moves, Blog posts and Editorial Features. Start the year with a recap on the developments that made the headlines and shook the market in 2012.

We kick off with the top 5 regulatory headlines- ranked based on total number of views each article received. A summary is provided next to each - full story accessible via the headline link (requires trial or subscriber access) to view.

Top 5 Regulatory Stories:

1. FSA confirms 'product intervention'

The Financial Services Authority (FSA) confirms that its main focus will be delivering the two principal regulatory initiatives to improve consumer protection, including early product intervention: the Retail Distribution Review (RDR) and Mortgage Market Review (MMR).

 

2. SocGen ordered to stop selling structured deposits by Japan's watchdog

Japan's Financial Services Agency (FSA) found that Société Générale Private Banking Japan incurred "serious violations of laws and regulations" following an onsite inspection conducted on 21 September, according to a statement released by the Japanese regulator. "Regarding the governance system, the compliance system and the customer protection management system, serious problems that may impede sound and appropriate business operations were recognised," it said.  As a result of the investigation, the French bank was ordered to suspend its trust business in the private banking division including proactive solicitation to clients and accepting money tied to risky assets such as foreign currency-denominated deposits, as well as structured deposits from 23 October to 22 November.

3. 'Unsuitable products' one of main risks facing consumers, says FSA

One of the major risks consumers face over the next twelve to eighteen months is being sold unsuitable products, according to a Financial Services Authority (FSA) analysis of the main risks potentially facing consumers in the financial services sector. "Consumers rely on financial firms and their products to provide them with vital services - literally the means to run their lives," said FSA's MD, Martin Wheatley. "They need to be able to trust that the products they buy work for them and that they are getting a fair deal. But our report today shows that consumers worry they aren't being sold the right products." The Retail Conduct Risk (RCR) Outlook, said the FSA, shows that consumers continue to struggle with the effects of a slower economy, low interest rates and poor returns on investments. As a result, one of the major risks consumers face is buying and being sold unsuitable products - everything from products that are too risky for them, to products they do not understand or that do not meet their individual circumstances.

4. FSA fines adviser firm for structured products failures

The Financial Services Authority (FSA) has fined Pi Financial Limited (Pi) £58,300 for failures in its advice to clients who invested in structured products and Unregulated Collective Investment Schemes (UCIS). "Pi's failings were serious. The firm sold Unregulated Collective Investment Schemes and structured products to ordinary retail investors, when these products were clearly unsuitable for their needs," said Georgina Philippou, head of retail enforcement at the FSA. "We have made our views on UCIS very clear in a series of communications, most recently in our consultation paper and supervisory letters to firms active in this market. UCIS are very often high risk, complex products which should not be promoted to the vast majority of retail investors in the UK." According to the FSA, the advisory firm recommended to clients "high risk products which were clearly unsuitable" between 1 January 2009 and 3 February 2012, and failed to take reasonable care to ensure the suitability of its advice. Pi advised 168 clients to invest £6m in Unregulated Collective Investment Schemes (UCIS) and 362 clients to invest £20m in structured products.Of the sample of files that the FSA reviewed, 50% were found to be unsuitable. Across the unsuitable files there was a clear disparity between the clients' moderate attitude to risk and the high risk nature of the products that were recommended.

5. Finra fines Merrill Lynch for unsuitable SP sales

The Financial Industry Regulatory Authority (Finra) fined Merrill Lynch $450,000, following a case involving unsuitable supervision of structured product sales. Finra claims that from January 2006 to March 2009, Merrill Lynch "failed to have a reasonable supervisory system that would flag for supervisors on an automated exception basis potentially unsuitable concentration levels in structured products in customer accounts..." Finra says Merrill Lynch relied upon automated exception-based reporting systems in order to monitor transactions and whether they fit suitably. Merrill Lynch claims that it began the development of an automated structured products concentration report in late 2008 and that the report was first installed in March 2009. The customers involved in the case made roughly 650,000 different structured product purchases in the three-year period, half of which were issued by the parent company, Bank of America Merrill Lynch.

 

Be sure to visit the blog tomorrow for Part 2 in our Top 5 stories of 2012 series - we'll be looking at the Top Product & Provider related news/events. Also to follow this week: Top people moves, editorial features, and blog postsof 2012!


 

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