The Financial Services Consumer Panel welcomes the FSA’s consumer warning on "precipice bonds". These are complicated products which provide high income, but carry high risks – in many cases, of losing all the initial capital invested.

The Panel is calling for strong follow up action from the FSA. It is urging them to take the possible enforcement action forward speedily and effectively. The FSA should also press for compensation to be paid to investors who were misled. The majority of people affected by this possible misselling are in their 60s and living on retirement income – they need to be reassured that they will have money to live on, and that any compensation will be delivered quickly and effectively.

However this action also points to broader issues for the FSA, which the Consumer Panel says must be acted on.

Misleading sales material has, once again, led people into the wrong products and into losing large amounts, and sometimes all their money. There are FSA rules about this. Some firms have been too keen to sell risky complicated products to a public which is hungry for better returns on savings. It’s time for the FSA to crack down harder and faster on financial promotions, both adverts and promotional mailings, and be seen to be doing so. The Panel has already called for a tougher and more open approach to policing financial adverts and sales material. Enforcement procedures grind slowly – partly because of legal restrictions placed on the FSA – but misleading financial promotions do their damage quickly. The FSA must find ways to stop the offenders before consumers are tricked.

Colin Brown, Chairman of the Panel said:
"In this time of low interest rates and falling stock markets, consumers are all the more easily swayed into buying a product which provides seemingly better than average returns. But we have seen the problems with sales material for split capital trusts, and now with precipice bonds. The FSA is also just now allowing securitised derivatives to be marketed and sold to the wider public. People must be reminded of the risks involved in all of these so called “exotic” products, and the FSA must clamp down on misleading promotions."

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Notes to editors