FSA: We were right to call life settlement funds ‘toxic’
Regulator stands by life settlement fund criticisms that led to one fund suspending due to a wave of withdrawals.
The FSA has said it was right to refer to traded life settlement investments (TLPIs) as “toxic” last year, because of the risks the assets pose to consumers.
The regulator has made the comments today in a document that summarises feedback it received to last November’s proposed ban on the sale of life settlement products to retail investors, in which it applied the “toxic” label.
The summary accompanies today’s publication of finalised guidance confirming the FSA is going ahead with the ban.
The FSA said: “We published our guidance for consultation because we have very serious concerns about how TLPIs have been marketed to retail investors for whom they are unlikely to be suitable.
“We believe the scale of the risk to consumers renders these products ‘toxic’ in relation to the UK retail market. One of the aims of our publication was for it to be accessible for ordinary investors and to avoid its message being lost in the use of technical terms.
“We have previously used the term ‘toxic’ in our communications when discussing the risks presented by certain features of products (or certain combinations of features) and/or the way they were being distributed.”
The $995m (£618m) EEA Life Settlements fund was forced to suspend following the FSA’s consulation publication last November, when a wave of clients tried to withdraw their investments.
In February this year the European Life Settlement Association slammed the FSA for “misuse” of the word ‘toxic’.
Elsewhere, the FSA has also said that its overall aims were proved to be correct by the redemptions seen from TLPI funds since it published the consultation.
The FSA did not specifically mention EEA, but it said: “The reaction of retail customers to the publication suggests many did not understand the risks to which they were exposed until the guidance clarified it for them.
“The fact that many had invested substantial proportions of their assets, indeed even borrowed money to invest, is indicative of the seriousness of the problems in this market.”
The FSA also said TLPIs “may well have been mis-sold to” consumers.
Ian Coley, partner and adviser at Medical Investment Services, has several clients in the EEA fund and said he was “disappointed and annoyed” at the FSA’s latest statement.
“The FSA said it has taken on board the feedback but they appear to have learnt nothing,” he said. “Regardless of any due diligence IFAs have done on these funds the FSA has said it doesn’t care, and it assumes all life settlements funds should be marked unsuitable.
“It is yet another exercise in futility trying to get it to own up to its responsibilities.”
Mr Coley said he plans to consider “all options” for his clients when the EEA fund reopens.