British financial regulators have declared that traded life policy investments, also known as life settlements or death bonds, should not be sold to most retail investors.
The UK Financial Services Authority Wednesday issued guidance indicating that it believes traded life policy investments, which invest in life insurance policies, typically of U.S. citizens, are high risk products that should not be promoted to the vast majority of retail investors.
The FSA says it has found evidence of significant problems with the way in which TLPIs are designed, marketed and sold to retail investors; and it reports that many of these products have failed, causing losses for investors. “Many TLPIs take the form of unregulated collective investment schemes, which cannot lawfully be promoted to retail investors in most cases, but have often been marketed inappropriately to retail customers,” it notes.
“The TLPI retail market is worth £1 billion in the UK and we were very concerned that it was likely to grow even more. At the time that we published our guidance over half of existing retail investments were in financial difficulty – even so, we were hearing about the development of new products intended to be sold to UK retail customers,” said Peter Smith, the FSA’s head of investment policy.
“The threat to new customers was significant and growing: the potential for substantial future detriment was clear. There was a concern that we were witnessing a repeating cycle of unsuitable sales followed by significant customer detriment in the TLPI market,” he added.
The guidance issued Wednesday is an interim measure, the regulator says, and it plans to consult on new rules imposing significant restrictions on the promotion of non-mainstream investments, including TLPIs, to retail investors. “We believe that TLPIs and all unregulated collective investment schemes should not generally be marketed to retail investors in the UK and will be publishing proposals soon to prevent them being promoted except in rare circumstances,” Smith said.