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Aifa calls for review of FSA life settlements move

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Aifa is calling for a review into whether the closure of EEA Life Settlements Fund was a direct result of the FSA’s proposal to ban life settlement funds from being marketed to UK retail investors.

The FSA published a guidance consultation on life settlements, or traded life policy investments, last month. The regulator branded TLPIs as high risk, toxic products and revealed plans to ban the marketing of TLPIs to retail investors.

Three days after the consultation was published, EEA decided to suspend dealings in the fund after receiving unprecedented levels of redemption requests from advisers and institutional investors.

Aifa director general Stephen Gay (pictured) says: “The FSA’s recent warning on the life settlement class has already forced one fund to close. This has caused real consumer detriment and may, in fact, have harmed the very people they are seeking to protect.

“There must now be a review to establish if this closure was likely to happen regardless or if it was the direct consequence of the regulator’s intervention.”

Gay says there are also concerns about how this more interventionist approach from the FSA will play out in future.

He adds: “If the regulator is to have significant product intervention powers, it is vital we know how they will work in practice and how they will assess the impact.

“The system of accountability for the regulator has relied on internal self-assessment with the result that there have been few external effective checks and balances in place. The FSA must be much more accountable for its actions.”

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Readers' comments (4)

  • Not sure what the FSA is supposed to do - they have no power to regulate offshore funds. They've been discussing their concerns on life settlement funds for about 2 years already and imagine the pasting they'd get if they just stood by and let people lose money without saying anything.

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  • It'l take more than AIFA calling for this to force the FSA into accountability.

    It's self-evident that the EEA fund made its decision because of the FSA's statement.

    What are they supposed to do?

    Not making such a statement would be a good start.

    Ian Coley
    Partner
    Medical Investment Servicews

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  • Discussing concerns over 2 years and branding life settlements “high risk, toxic and suggesting a ban" are two very different approaches. Surely consultation with firms active in the LS market in conjunction with penalties on accepting new UK retail investors would have been a more tactful approach. They could have also requested that firms disinvest all UK retail investors over a manageable and orderly period. Creating a stampede of redemptions from panicking investors (both retail and institutional) is not a well thought out risk management strategy and benefits nobody.
    I assume that given this basis of regulation the FSA were intending to advise all of us that RBS was about to go bust? Fortunately “we” managed to save RBS before the FSA could get their press releases out.....

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  • I agree with Ian Coley's comment, though at least AIFA has asked the question, so it's doing its best to get the FSA to account for its actions. I presume that AIFA is keeping relevant MP's, notably members of the TSC, informed of its actions. If not, it certainly should be.

    Once again, this appears to be another example of the FSA's hatchets and sledgehammers approach to regulation, without due consideration having been given to that thorny old issue of collateral damage. We've seen just the same consequences with the FSA's reform of With Profits funds ~ going in too hard and forcing major changes in such relatively short timescales was bound to result in damage to the interests of investors. One might reasonably expect the FSA to have realised this error and, next time, to have taken a rather more measured and carefully considered approach. But sadly no. Will the FSA ever learn? We live in hope, if not expectation.

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