The FCA has said consumers are struggling to understand structured products and called for improvements.
The regulator has this morning published a behavioural economics research paper, which found that many consumers have overestimated the expected returns on structured deposits.
The FCA report stated: "Consumers were asked to anticipate how the FTSE 100 would grow over time and then for their expectations for structured deposits linked to the FTSE 100 during the same period.

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"While consumers' expectations for FTSE growth were in line with the FCA's assumptions, they did not match the returns they anticipated on structured products based on the same benchmark.
"The FCA found that, on average, returns were overestimated significantly, by almost 10 per cent of the assumed investment amount over five years."
The FCA also found that consumers did not recognise that the structured products designed for the purpose of the research were unlikely to offer greater returns compared to best-buy fixed-term cash deposits. It said consumers needed to be offered relatively high rates of return on risk-free cash deposits for these products to be preferred to structured deposits.
Tracey McDermott, director of supervision and authorisations at the FCA, said:
"There is a place for structured deposits in the market. But our research shows that many consumers find it difficult to understand how these work and compare them to alternatives.
"That is why it is crucial that firms ensure the way they design and market these products is driven by the needs of consumers. Our work indicated that this is not always the case.
"For consumers, the message is simple – think very carefully before buying a product if you don't understand how it works and if you're unsure, ask for more information or consider seeking financial advice."

The key areas of concern the FCA said where firms fell short of expected standards were:

·Firms' senior management must do more to put customers at the forefront of their approach to product governance.
·Structured products should have a reasonable prospect of delivering economic value to customers in the target market. Firms must be able to determine and evidence this via robust stress testing as part of the product approval process. Products that fail this process should not be manufactured nor distributed.
·Firms need to provide customers with clear and balanced information on each product and any risks. This is particularly important for information explaining the likelihood of potential investment returns and any risk to the customer's capital.
·Manufacturers need to strengthen the lifecycle monitoring of their products.