FSA defends life settlement clampdown after EEA suspension

Trading in the $995m (£608m) EEA Life Settlements fund has been suspended by the company’s board after a wave of investors tried to withdraw their assets, potentially throwing the fund’s solvency into doubt.

The suspension means the existing investors are effectively trapped in the fund until the board decides that it can resume paying investors their money back while ensuring the fund’s solvency.

The FSA said: “We acknowledge that the publication of our guidance consultation may have prompted a number of investors to request redemptions from funds.

“We also recognise that our decision to intervene in this market may pose difficulties for existing investors.

“However, we considered that it was necessary for us to act because of our concerns about these products being inappropriately promoted or recommended to a growing number of retail customers.”

The regulator said it was also “concerned about the problems that existing customers are likely to face”.

“Many of the traded life policy investment (TLPI) products in the market were already in difficulty at the time we published the guidance, and because these products tend to be based offshore and therefore outside of the FSA’s jurisdiction, we are limited in what we can do.

“We have been working with overseas regulators and with a number of TLPI firms for some time, and have kept them informed of our concerns.”

The FSA added the suspension “does not necessarily mean existing investors will lose their investments”, but admitted that redemptions may take some time to be paid.

EEA has insisted that it has sufficient cash to pay premiums on the second-hand life settlements contracts which make up the fund but has not disclosed how much this amounts to.