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MM Leader: FSA needs to take a careful line on life settlements

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Evidence of the FSA’s new interventionist streak was on display this week as the regulator proposed banning the sale of life settlement funds to retail investors.

The life settlement industry has been in the FSA’s sights for some time following a speech early last year warning about “major flaws” in the marketing of the products.

The failings of Keydata Lifemark products, underpinned by life settlements, and ARM Asset Backed Securities, the life settlement vehicle that was used extensively by the recently fined Rockingham Independent, have exposed the huge range of risks associated with the asset class.

Banning a range of products from retail investors is not a step that regulators should take lightly but the risk and complexities associated with life settlements are such that they are unlikely to be suitable for the vast majority of retail investors. The fact that many life settlement funds are based offshore and so do not offer investors Financial Ombudsman Service or Financial Services Compensation Scheme protection, adds to the risks.

The FSA must tread carefully when ordering redress and past business reviews as these could hit the liquidity of a number of the investments. The regulator estimates that around £500m of the £1bn market is held by investments that are in difficulty and it must ensure its actions do not exacerbate client losses.

Investors nursing significant losses associated with life settlement vehicles may question why the FSA did not act sooner. However, this new tough line, which will protect consumers from these complex investments and IFAs from future FSCS bills, is to be welcomed.

Cost of delay

Leaving aside the horrific communication of this week’s auto-enrolment changes, the Government’s delays are bad news for the pension prospects of employers working for smaller firms.

When Adair Turner’s pensions commission published its final report, which became the foundation of the reforms, it warned of the damaging effect of delay on people’s future pots. This is now the second time that auto-enrolment has been delayed.

There is already concern that 8 per cent contribution levels will not provide a decent pension for most people. Every year of delay condemns more people to an inadequate retirement income.

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Readers' comments (9)

  • Sheep. The FSA say the sky is yellow and we all agree ! Better journalism would be better too. As far as I know, no-one in the retail sector has suffered any financial loss whatsoever (unlike the millions of equity investors) and, if regulators had left the asset class alone would still be enjoying 10% + returns. The regulators here and abroad have caused the problems with life settlements, period.

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  • From what I understand the FSA carried out a review on Keydata and said no problems. They then later identified problems and told nobody and now we are told they are bad bad things and should not be allowed. Personally I do not have a problem with Life Settlements although I have never sold one myself. They do however have a place in the marketplace and just because the FSA got it wrong (yet again) they should not be trying to hide their mistakes in such a duplicitous manner

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  • Problems with Keydata - I see no problems (FSA imitating Nelson just before he got killed off)

    I personally will not shed any tears if people lose their jobs at the FSA when the FCA comes into force and are not transferred over.

    But then, whom am I ? Oh yes, one of the poor unfortunate suckers who pays for a "world class regulator" and gets a bunch of inadequates whose ability to apply common sense to their work has deserted them.

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  • Such heavy handed moves will wash some perfectly healthy babies out with the bathwater.

    Causing losses to some retail investors to prevent losses to others is certainly an interesting approach from a body whose duty is to protect the consumer....

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  • " However, this new tough line, which will protect consumers from these complex investments and IFAs from future FSCS bills, is to be welcomed."

    Is it?

    You welcome the magnification of the liquidity risk directy caused by the FSA's irreseponsibility.

    I reckon this proves that the FSA has ceased to be fit for purpose and really does not understand its own remit.

    This is financial stupidity of the most fundamental type.

    Isn Coley
    partner
    Pedical Investment Services

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  • TOO LATE! Job done!

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  • I'm sorry but why doesn't this article make plain that Life Settlements Funds are not readily available to retail investors. Just which funds, if any, was the FSA proposing to ban? Do some journalistic investigation Money Marketing or get off the net!

    This situation beggars belief!!

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  • I was probaby the last person to get my money out alive - 24 hours after the big bang on ARM Asset Backed Securities. In the 3 weeks of agony ringing everyone daily to see why my money was not being returned, I rang the FSA with my concerns but they had nothing to tell me. They must have known that the Luxembourg authorities had banned the sale of ARM bonds 2 years earlier but did nothing.

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  • why was i toid to invest through my sipp 120k in arm assured plan and 50k in eea life settlement fund by rockingham retirement in 2010 when rockingham and the fsa knew there were problems in 2009 i was told they were low to middle risk and nothing to do with ftse and were safe investments
    how long i can last with out income from my arm investment

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