FSA issues “toxic” traded life policies warning

The Financial Services Authority (FSA) has warned that traded life policy investments are “high risk, toxic products that are generally unsuitable for the majority of UK investors”.

The FSA said the products should not be promoted to UK retail investors, warning of the risks associated with the underlying assets.

The investments, which buy US life insurance policies, are exposed to a risk that US citizens may live longer with investments not performing as expected, according to the FSA.

Margaret Cole, managing director at the FSA, said: “The failure of these products in the past has led to significant consumer detriment and we fear new investors will suffer unless we take the necessary steps now to prevent their sale and distribution.

“We are issuing a strong warning to the industry not to market these products to UK retail investors.

“Ultimately we aim to ban TLPIs [traded life policy investments] from being marketed to UK retail investors, and we intend to consult on this next year to help erase the risks they pose. “

She said: “Firms should not be selling these high risk products to retail investors, and so our guidance reminds firms of the importance of assessing whether a product is suitable for a customer and whether promotional material makes risk warnings clear enough.”

“Products such as TLPIs are not a simple problem for the FSA to address as many of them are based outside of the UK, and so are outside the FSA’s jurisdiction.”

Cole added: “There are also considerations under EU law that will affect what we can do. However, the FSA is engaging in discussions in Europe around the MiFID review, AIFM Directive and with other European supervisors to find a solution to give greater consumer protection against these products.

“For now, we want to make our message about these products clear – they are completely unsuitable for most UK retail investors.”

The regulator has called on firms to consider the risks of the products and be aware that they should not be promoted to retail investors.

It is also asking advisers to conduct extensive research and provide “robust justification in the unlikely event they think TLPIs might be suitable for a particular retail investor”.

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