The UK’s Financial Services Authority (FSA)
has confirmed that traded life policy investments (TLPIs) are high
risk products that should not be promoted to the vast majority of
retail investors in the UK.

TLPIs invest in life insurance policies,
typically of US citizens. Investors hope to benefit by buying the
right to the insurance payouts upon the death of the original
policyholder.

As a result, a TLPI investor is betting on
when a particular set of US citizens will die and, if these people
live longer than anticipated, the investment may not function as
expected.

The FSA said it has found evidence of
significant problems with the way in which TLPIs are designed,
marketed and sold to UK retail investors. 

Many of these products have failed, causing
loss for UK retail investors, said the FSA.

Inappropriate marketing

The FSA explained that many TLPIs take the
form of unregulated collective investment schemes, which cannot
lawfully be promoted to retail investors in most cases, but have
often been marketed inappropriately to retail customers.

Peter Smith, the FSA’s head of investment
policy, said: “The TLPI retail market is worth £1 billion in the UK
and we were very concerned that it was likely to grow even more. At
the time that we published our guidance over half of existing
retail investments were in financial difficulty – even so, we were
hearing about the development of new products intended to be sold
to UK retail customers.”

The guidance on TLPIs from the FSA is an
interim measure and the regulator will shortly be consulting on new
rules imposing significant restrictions on the promotion of
non-mainstream investments, including TLPIs, to retail
investors.