Firms that sold the policies may now be fined by the FSA
The Financial Services Authority (FSA) is to take action against firms which sold investment policies backed by failed bank Lehman Brothers.
The watchdog has uncovered "serious issues" after its review of promotional literature, clarity of information and quality of advice.
The review probed complex investments known as "structured products".
Advisers, plan managers and providers could face FSA action over what it describes as "serious issues".
Just over 5,600 British consumers invested £107m in these policies, supposedly guaranteed by Lehman Brothers, between November 2007 and September 2008.
As a result of the bank going bust many of the investors lost their money, despite some apparent assurances that their investment was 100% safe.
The so-called structured products were investment policies linked to an index or an asset for a certain period of time.
They used derivatives to provide a return based on the performance of the asset, and offered a limit on possible capital and gains losses.
But the guarantees are usually offered by third parties and there is a risk the third party, such as Lehman Brothers, may default.
Dan Waters, retail policy director at the FSA, said: "This is a hugely complex area and during our review we have looked at promotional literature, clarity of information, quality of advice, sales systems and controls, involving plan managers, providers and advisers."
He added: "There is still much for us to do... but I can confirm that we have found serious issues and will be taking action against firms."
Mr Waters would not comment further on the type of action or firms involved.
But the FSA has powers to fine individuals and companies and even impose bans from working in the financial services industry.
The development comes on the eve of the first anniversary of Lehman Brother's collapse.
The FSA said it also had enough information to let the Financial Ombudsman Service (FOS) deal with those complaints that had been referred to it about the Lehman-backed policies.