Traded life policy investments should not be promoted to normal investors, the City Watchdog has ruled.
The Financial Services Authority (FSA) this week branded the so-called "death bonds" as being too high risk.
The bonds operate by taking over life insurance policies – normally of US citizens – and continuing to pay the premiums. When the original policyholders die, the bonds receive the payouts.
But if the people on whose lives the policies are held live longer than expected, investors will lose out.
In fact many death bonds have failed, causing loss for UK investors, the FSA reported.
It warned many cannot lawfully be promoted to retail investors in most cases, but have often been marketed inappropriately to them.
The FSA will propose the bonds are banned from sale.
Peter Smith, the FSA's head of investment policy, said: "The traded life policy investment retail market is worth £1bn in the UK and we are very concerned that it was likely to grow even more.
"We believe that all unregulated collective investment schemes should not generally be marketed to retail investors in the UK."
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