The Financial Services Authority (FSA) is to look into ‘purported regulatory blockages’ stopping investors and advisers from knowing the counterparty involved in the set-up of some structured products.

FSA retail policy director Dan Waters (pictured) told a structured products conference last week that analysis of the structured product market and levels of disclosure had thrown up ‘a number of issues’.

‘In the UK, in addition to collecting data on products affected by Lehmans’ failure, we have been considering the quality of marketing material and risk disclosures in communications issued for the products affected,’ said Waters.

‘Our analysis has thrown up a number of issues but, in particular, we would highlight that we are keen to work through some of the purported regulatory blockages that stop investors or their advisers knowing which institution or institutions have issued the debt that makes up the capital protected element of a particular product.’

Waters outlined his concern that throughout 2007 and 2008 advisers may not have properly considered the counterparty risk of structured products.

Consumers may also not understand the extent to which the long-term performance of structured products can fall behind other investments with a similar risk level, he said.

‘It’s possible that consumers may fail to understand the implicit costs of capital preservation in these funds, especially the likely reduction in total returns compared with similar risk products in the long term,’ he said.

‘One possible result of short-term high-risk aversion might be that investors could be at increased risk of buying or being sold products that may not be a prudent choice for those with long-term investment horizons.’