Life settlement sale could reduce FSCS call on advisers

FSCS Interior 480

Troubled Luxembourg-based investment vehicle ARM Asset Backed Securities has sold its life settlement portfolio for an undisclosed sum to life settlement fund Financial Credit Investment I Limited.

ARM issued bonds investing in life settlement plans which underpinned the Rita 10-year annuity product sold by Rockingham Independent. The Financial Services Compensation Scheme declared Rockingham in default earlier this month, after it went into administration in March.

The FSCS is investigating whether it is liable for compensating Rockingham clients who lost money from investing in ARM bonds. Out of the 2,000 UK investors that invested a total of £75m in ARM bonds, at least 200 sales were advised by Rockingham Independent.

Rockingham was fined £35,000 in September 2011 for putting clients at risk of receiving unsuitable advice.

The sale of ARM’s life settlement portfolio could see greater returns for bondholders, which in turn could result in a smaller call on the FSCS if the compensation scheme decides to pay out on investor losses relating to ARM.

ARM is not covered by the FSCS as it is based in Luxembourg, but the FSCS does cover UK authorised firms who advised on ARM sales, such as Rockingham, and ARM’s UK distributor Catalyst Investment Group.

A statement posted yesterday on the Irish Stock Exchange, where ARM is listed, says: “The initial outstanding issue was the derisking of the current portfolio that was degrading rapidly as value was eroding while it supported premiums, operating and legal costs. As it stood the value of the portfolio was greater than the sum of its parts and any further sale of policies in small lots would have precipitously eroded underlying value for bondholders.

“The board reached unanimous consensus that the cash bid presented by FCIL was the bid that would achieve the most favourable outcome for our investors. We are now working on the settlement of this transaction, which so far is proceeding in an orderly way.”

Regulators have been unravelling investments made to ARM since the Luxemburg regulator refused to grant it a licence in August 2011. Last November the FSA instructed UK banks not to move any of the money being held in relation to ARM investments without the permission of the Luxemburg regulator.

It is unclear whether “pending investors”, who handed over money to ARM but were not issued with bonds following the licence refusal, will get their money back.

The Irish Stock Exchange announcement says: “The board is actively perusing a resolution of the ‘pending monies’ issue. It is hoped that extensive legal proceedings can be avoided.”