Structured products: Why new rules may confuse complexity with risk

Jamie Smith, chairman of the UK Structured Products Association, reflects on its achievements and describes its future roles.

The key objective of the UK Structured Products Association (UK SPA) is education. Our goal is to increase awareness and understanding of structured products among intermediaries and investors. This may sound fairly basic, but problems with financial products in the past have often come down to a lack of understanding of what that product is and what it is for.

One of our main avenues in raising awareness is the financial media; our members are keen to discuss and explain the major themes affecting structured products, and so generate a more informed and healthy dialogue across the wider industry.

In addition, we aim to grow the membership’s connectivity with other industry participants. At present, there are some firms that create, distribute or support structured products that are not members of the UK SPA. We will work more closely with them, either directly or through other industry bodies, so that our organisation is more representative of the UK market.

The UK SPA has already become established as a voice for the structured products community in the UK, and particularly in such a changing regulatory environment, the collective voice of industry participants can help regulators and authorities to shape the market.

The association was formed around two years ago. Since then we have brought together members from a number of different commercial organisations in a forum where they can gain a wider understanding of their industry. That was UK SPA’s first achievement – the creation of that forum.

Its second achievement was to create a central point of contact that was representative of the structured products sector. Before the UK SPA existed anyone trying to get a feel for the industry – regulators, the media, analysts – would have had to pick a structured product provider at random to speak to, which would hardly have been inclusive. The UK SPA has given the industry a central focus and a more representative point of access.

Finding a balance

That central focus has enabled us to speak with one voice about regulatory changes. This is a subject that comes up all the time as the regulatory landscape changes in the UK and Europe. The challenge for us is to get the balance right: to ensure, on the one hand, fair, sensible and transparent regulations to protect investors and, on the other, having a healthy, competitive financial market in the UK so investors can choose from a full range of financial products.

In Europe the retail market for structured products is more developed than in the UK, so we may have something to learn from our neighbours. Differing investor cultures across Europe and the UK have led to greater use of structured investments in some markets; the total size of the structured products market in Belgium is thought to be about the same as that of the UK, for example.