The European Life Settlement Association is to publish a code of practice to raise standards in the industry as the FSA shows heightened interest in the sector.
The move comes as FSA head of investment policy Peter Smith delivers a keynote speech on life settlements at the Elsa life settlements trade mission today.
He will address issues including treating customers fairly, sales by intermediaries and financial promotions.
Elsa joint chairman and SL Investment Management investment director Patrick McAdams says the code, which is close to being published, will cover issues such as conflicts of interest and transparency. He says: “The FSA has been in touch with providers asking what sort of product we sell and how much business we have done so they are obviously doing some digging at the moment to try to get a handle on how big a market this is and how concerned or not they should be.”
He says the majority of life settlement problems have stemmed from conflicts of interest where managers were paid a performance fee that was not actually linked to the investment’s end performance.
McAdams believes a benchmark valuation could help resolve this issue. He says: “Without a standard valuation methodology, where there is a performance fee, it is ripe for misuse.”
Alan Nedas Associates principal Alan Nedas says: “It is very important that a code of practice is established but hopefully it will have teeth and not just be another bureaucratic statement. The average individual investor has not got a clue as to what is behind a life settlement and what the intangibles are.”
Collapsed structured product Keydata was a significant life settlement product issuer with money invested with Luxemburg life settlement vehicles SLS Capital and Lifemark. Its business interests in this asset class and its third-party administration duties outweighed its own-branded structured product interests.