The FSA has warned UK investors who have paid a total of £75m to a Luxemburg-based life settlement vehicle there is “considerable legal uncertainty” surrounding some of the money invested.
The FSA, the Luxemburg regulator and the Central Bank of Ireland are working to unravel investments made to ARM Asset Backed Securities which issued bonds based on life settlement policies without the appropriate permissions. The bonds were sold via distributors to investors in the UK and Europe and were listed on the Irish Stock Exchange.
Out of the 2,000 UK investors that invested in ARM bonds, at least 200 sales were advised by Rockingham Independent.
The FSA fined Rockingham £35,000 in September and imposed partial bans on its directors over its sales of the ARM bonds and unregulated collective investment schemes.
Rockingham is currently in the process of carrying out a past business review to determine if redress is needed.
The FSA says several other IFA firms were also responsible for distributing the ARM bonds, but is not disclosing the name of the firms involved.
In August the Luxemburg financial services regulator, the Commission de Surveillance du Secteur Financier, refused to grant a licence to ARM, which forces the vehicle’s liquidation. ARM has appealed the decision.
ARM bonds were sold in 11 tranches, with tranches one to eight sold between 2006 and 2009. A further group of investors known as ’pending investors’ were not issued with bonds following the refusal of the ARM licence. Money paid in tranche nine for bonds between September 2009 and December 2009 was transferred to ARM in December 2009. This money has been spent on premiums, coupons, refunds and expenses. Money paid by pending investors after December 2009 for tranches 10 and 11 was not transferred to ARM and is being held by receiving agents.
The FSA published information for ARM investors on its website earlier this week.
It reveals the FSA has instructed UK banks not to move any of the money being held in relation to ARM investments without the permission of the Luxemburg regulator.
The FSA says: “There is considerable legal uncertainty in relation to all pending investors’ money, which may belong to certain or all pending investors rather than ARM. This point may be determined in a UK and/or Luxembourg court.”
US life settlement firm Insetco announced it had agreed to acquire ARM assets in September.
ARM investors have been asked whether they would vote in favour of the Insetco offer by November 8. The CSSF is concerned investors do not have enough information to make an informed decision on the deal.
As ARM is not authorised by the FSA investors cannot complain to the Financial Ombudsman Service and are not covered by the Financial Services Compensation Scheme.
However investors can still claim against their IFA who recommended the bonds and are likely to be part of the FSA ordered redress scheme if they were clients of Rockingham.