Structured products represent investment vehicles that yield returns tied to asset performance. These assets encompass various markets, such as equities, indices, funds, interest rates, currencies, commodities, or real estate. They offer predefined payoffs and risk capital levels, with flexible profiles suited for bullish, bearish, or range-bound markets. Tailoring options make them ideal for fixed-term investors seeking capital protection.
The exact definition varies from country to country and according to different regulators and associations. The SRP definition is that a structured product is an investment that provides a return based on the performance of an asset. This asset can cover equity, index, fund, interest rate, currency, commodity or property markets. The payoff and level of capital at risk can be pre-defined, and the payoff profile can be built to take advantage of rising, falling or range bound markets. The product is delivered in a form that is tailored to the needs of investors.
Each market has its own regulation and definition of structured products, though as an investment product, they are in most cases overseen by the financial regulator. There are also regional and global authorities such as the European Securities and Markets Authority (Esma), whose objective is to strengthen investor protection in the European Union.
Details of regulators in some of the key global markets are available below.
Finanzmarktaufsichtsbehörde (Financial Market Authority of Austria)
Autorité des services et marchés financiers/Authoriteit voor Financiële Diensten en Markten (Financial Services and Markets Authority)
Comissão de Valores Mobiliários (Securities and Exchange Commission of Brazil)
Superintendência de Seguros Privados (Superintendence of Private Insurance)
Autorité des marchés financiers (Québec)
Finanstilsynet (Danish Financial Supervisory Authority)
Finantsinspektsioon (Financial Supervision Authority)
Eesti Pank (Central Bank of Estonia)
Finanssivalvonta (Financial Supervisory Authority)
Autorité des marchés financiers (French Financial Markets Authority)
Registre unique des Intermédiaires en Assurance, Banque et Finance (Single Register of Insurance, Banking, and Finance Intermediaries)
Bundesanstalt für Finanzdienstleistungsaufsicht (Federal Financial Supervisory Authority, commonly referred to as BaFin)
Commissione Nazionale per le Società e la Borsa (Italian Companies and Exchange Commission)
Istituto per la vigilanza sulle assicurazioni (Institute for the Supervision of Insurance)
Bank Negara Malaysia (Central Bank of Malaysia)
Comisión Nacional Bancaria y de Valores (National Banking and Securities Commission)
Autoriteit Financiële Markten (Netherlands Authority for the Financial Markets)
Finanstilsynet (Financial Supervisory Authority)
Komisja Nadzoru Finansowego (Polish Financial Supervisory Authority)
Comissão do Mercado de Valores Mobiliários (Portuguese Securities Market Commission)
Comisión Nacional del Mercado de Valores (Spanish Securities Market Commission)
Dirección General de Seguros y Fondos de Pensiones (Insurance regulator)
Finansinspektionen (Financial Supervisory Authority of Sweden)
Eidgenössische Finanzmarktaufsicht/ Autorité fédérale de surveillance des marchés financiers/ Autorità federale di vigilanza sui mercati finanziari (Swiss Financial Market Supervisory Authority)
Each structured product carries its own level of risk, which can range from low risk, similar to a traditional deposit, to high risk. Since 2008, most regulators and issuers have been carefully categorising and creating a target market for each product to avoid selling high-risk products to unsuitable investors.
In Europe, since 2018, all potential investors have to be provided with a key information document (Kid) prior to purchasing a packaged investment product. A Kid, which runs to maximum three pages, outlines the key features and functioning of a financial product, describes in detail the associated risks and benefits of the product in various scenarios, and lists costs. The summary risk indicator provides a clear presentation of the risks of the investment using seven risk classes. The Kid is designed to help compare different financial products.
Structured products have received an extraordinary level of attention from regulators since the 2008 crisis, and, as a result, transparency has increased. Nowadays, investors have access to information regarding structured product fees and risks in most countries.
There are six types of transparency investors need to look out for: transparency of the underlying; scenario transparency; risk transparency; cost transparency, liquidity transparency, and; valuation transparency.
In this context, it is particularly important to answer the following questions:
In addition, transparency also requires that information is available concerning the structure and the development of the market in question. In answer to these questions, the following facts demonstrate that structured products have extremely high product and market transparency.
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