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April 27, 2012updated 13 Apr 2017 8:44am

FSA ‘blacklists’ traded life policy investments

The UKs 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. Investors hope to benefit by buying the right to the insurance payouts upon the death of the original policyholder

By Ronan Mccaughey

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.

 

 

 

 

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