FSA: strict new rules on traded life policy investments
by Gill Montia
The Financial Services Authority (FSA) has published strict new rules on the sale of traded life policy investments (TLPIs) to UK retail investors.
The regulator reckons TLPIs are “high risk, toxic products” because investors are effectively betting on when a particular set of US citizens will die.
They are also known as “death bonds” because investors are putting their money into a pooled investment or fund which invests in US life insurance policies.
The FSA says there are significant problems with the way in which TLPIs are designed, marketed and sold to UK retail investors and is therefore asking firms to:
Consider the significant risks of TLPIs and be aware that they should not be promoted to UK retail investors.
Conduct extensive research and be able to provide robust justification in the unlikely event they think TLPIs might be suitable for a particular retail investor.
Be aware of underlying assets within the investments they recommend; for example, know whether a TLPI is an underlying asset within another investment e.g. a fund of funds.
Not recommend products they do not fully understand.
The FSA’s interim managing director, Conduct Business Unit, Margaret Cole, says: “Ultimately we aim to ban TLPIs from being marketed to UK retail investors, and we intend to consult on this next year to help erase the risks they pose.”
She adds: “Firms should not be selling these high risk products to retail investors, and so our guidance reminds firms of the importance of assessing whether a product is suitable for a customer and whether promotional material makes risk warnings clear enough.”