Regulation  

Consumers may have been missold ‘death bonds’

Investors who used an unregulated collective investment scheme of “death bonds” may have been mis-sold products, the FCA has said.

The regulator said investors in the EEA Life Settlements Fund were “likely to have been mis-sold the product” and may wish to complain or claim against the firm that sold it.

It added: “There is only a limited time in which to do so, and in some cases the deadline for making complaints or claims may start to expire from 1 December 2014 onwards.”

The FCA’s reasons why traded life insurance policies are “high-risk investments”
They use complex investment strategies based on calculations about how long people will live - introducing longevity risk.
If an investment manager needs to raise extra funds by selling some of the life assurance policies before the death of the original policyholder, they may struggle to do so.
The policies can involve firms in different countries, responsible for different aspects, which could make it hard to ensure fairness for customers and for investors to understand the process and risks involved.
The products could fail entirely, losing customers significant amounts of money.

The fund, based in Guernsey and previously listed on the Channel Islands Securities Exchange, is made up of traded life insurance policies.

The policies, also called “death bonds”, are investments in life assurance policies, often in the US. Investors hope to benefit by buying the right to the insurance payouts upon the death of the original policyholders.

The regulator first reviewed sales in the market in April 2012. In January, it banned the promotion of the policies to most retail investors.

Adviser view

Duncan Shaun, chartered financial planner for Somerset-based Keyte Chartered Financial Planners, said: “Credit where credit is due – the FSA flagged it up and the FCA has followed through.”

Right to reply

EEA Group said: “Neither EEA Fund Management Limited, which is the fund’s marketing agent, nor EEA Fund Management (Guernsey) Limited, the fund’s manager, have ever provided advice to retail investors in the UK.

“If there are instances where products have been missold by an IFA, then it may well be appropriate for an investor to consider making a claim against the IFA in the manner suggested by the FCA.”

Background

The FCA says traded life insurance policies are “high-risk investments” because they use complex investment strategies based on calculations about how long people will live – introducing longevity risk.

Policies can involve firms in different countries, responsible for different aspects, which could make it hard to ensure fairness for customers and clarity of processes and risks for investors. The products could fail entirely, losing customers significant amounts of money.