The FSA says firms that have recommended traded life policy investments should consider carrying out a past business review to assess whether redress should be paid to investors.
The regulator has published a guidance consultation on TLPIs today which sets out the FSA’s aim of banning the marketing of the products to UK retail investors.
The total UK market in TLPIs is estimated to be worth around £1bn. The FSA says approximately half of this money is held in TLPIs that are already in difficulty.
The FSA estimates that at least 1,000 distributor firms were involved in the sale of TLPIs. The FSA estimates the cost of reviewing past TLPI sales to be between £200 to £300 per case where firms are using their own compliance staff.
The FSA says: “There is a risk that any reviews of sales by firms and subsequent payment of redress may lead to problems with the ongoing viability of some firms.”
It says the risks posed by TLPIs means firms that recommended these products may be impacted by customer claims for redress regardless of the guidance.
However the FSA admits today’s guidance may accelerate the failure of firms that sold these products.
The FSA adds: “There is a risk that publishing this guidance may lead to a run and, if that jeopardises the viability of the product, consumers may lose money as a result.”
The FSA says it has found evidence of one TLPI where average holdings per investor were £36,000.
It also says its work with one TLPI suggests that investors may only get back 15 per cent of their investment if the product were to fail.