The UK Financial Services Compensation Scheme has concluded that the marketing material for Lehman Brothers's capital-at-risk products was adequate and appropriate About 2,000 investors in Lehman Brothers-backed capital-at-risk structured product plans run by failed firms Arc, NDF Administration and Defined Returns (DRL) will not be able to claim compensation from the UK's Financial Services Compensation Scheme (FSCS). The FSCS says it is satisfied the relevant marketing materials for the products provided adequate and appropriate warnings that there was a risk to investors' capital if the organisation backing these investment products failed. It announced last year it would be offering compensation to the 1,700 investors in the capital-secure products backed by the collapsed firms. The investments defined as capital-at-risk are: NDF – Fixed Income or Growth Plan, February 2008 NDF – Fixed Income Plan, June 2008 DRL – Kick Out Performance Plan Issue 1 Arc – Fixed Income Plan 6 Arc – Stepped Kick Out Plan 5 The FSCS says: "Investors will not, therefore, have claims arising from the materials generally and we will not send application forms to all known investors with capital-at-risk products. However, if any investor wishes to submit a claim to us, for any specific other reason, they can do so by contacting us to request an application form. "When completing the application form, investors should provide us with as much information as possible about why they believe their claim is eligible for compensation. We will then assess claims for compensation on a case-by-case basis. By completing the application form, the investor will be able to set out why they believe they have a valid claim against NDF, DRL or Arc. "Please be aware, however, that we can only accept a claim where a claimant can demonstrate to us that a legal liability is owed to him or her by one of the firms in default." Structured product failings have already cost the industry £22 million in FSCS levies, in addition to a £58 million levy for Keydata, Pacific Continental and Square Mile compensation claims. "This sounds reasonable to me; I didn't really expect any other conclusion," says Ian Lowes, managing director of Lowes Financial Management. "I've lost money in these products myself, but these were fully disclosed investment risks, which were fully accepted by the people invested in them. "Of course it would have been nice for investors to have received compensation, but I would have been disappointed if the industry had been made to pay for this." NDFA and Defined Returns went into administration on October 14, 2009, while Arc went into administration on October 26, 2009. The FSA determined NDF, DRL and Arc to be in default on the same date the respective firms went into administration. The FSA conducted a review into the marketing and sale of structured products in 2009, including Lehman-backed plans, which identified failings on the part of both providers and advisers. Enforcement action has also been taken against a number of advisers over the sales of Lehman-backed plans. However, there has been a concerted effort on the part of many providers and advisers since the review to improve marketing literature and the sale of structured products to ensure consumers are aware of the associated counterparty risks. This story first appeared on IFAOnline...
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