Watchdog warns over 'toxic' death bonds
FSA's criticism of life policy investments prompts investor panic.
The City watchdog this week announced plans to ban so-called death bonds from being sold to British investors. The Financial Services Authority said on Monday that traded life policy investments – which encourage investors to gamble on when certain US citizens will die – were "high risk, toxic products".
The bonds take over life policies and continue to pay the policy 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 lose out.
"The failure of these in the pasthas led to significant consumer detriment, and new investors will suffer unless we take the necessary steps now," warned Margaret Cole,the FSA's managing director.
The warning prompted worried investors to clamour to get their money out of the EEA Life Settlements Fund, one of the biggest traded life policy funds in the UK. In fact the fund was forced to suspend dealings on Wednesday, saying: 'The current liquidity levels of the fund are insufficient to satisfy the redemption requests."
But Peter Winders, marketing director at EEA Fund Management, said: "Shareholders should be assured that the suspension of dealings will in no way affect the ability of the fund to pay premiums on insurance policies in the usual manner."
Ray Black, of the financial adviser Money-minder.com, said: 'The FSA's damning statement on TLPI's seems to have already had the effect they were after – to make it very difficult for UK investors to put their money in. And unfortunately, the manner of their demise will almost certainly prove to be costly to existing investors.
"Whether or not you agree that life settlements can be a suitable diversification for well-informed investors happy to accept the risk, it seems that the option is effectively being removed without the need for the actual ban to be implemented."
The FSA will consult next year about banning the sale of the bonds. "We are issuing a strong warning to the industry not to market these products to UK retail investors," said Ms Cole. "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 said firms should not be selling the high-risk bonds to retail investors. Part of the problem is that many of the bonds are located offshore, giving UK investors no regulatory protection.
But Mr Black said a blanket ban is not the answer. "It is important that UK investors are protected from fraudulent or unsuitable products," he said. "However, it's a shame that this type of investment has been dismissed before it has really even had an opportunity to demonstrate how good it might have been."
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
Olympic diver has made his modelling debut for Adidas
- 1 Thailand beach murders: Thai PM suggests 'attractive' female tourists cannot expect to be safe wearing bikinis
- 2 Scottish independence: Learn from Quebec's mistakes and beware of promises. Vote Yes.
- 3 A bottle of wine a day is not bad for you and abstaining is worse than drinking, scientist claims
- 5 Hitler’s former food taster reveals the horrors of the Wolf’s Lair
Daniele Watts: Django Unchained actress detained by Los Angeles police after being mistaken for a prostitute
Scottish independence referendum: A nation divided against itself
The political class is doing what Hitler couldn’t – destroying Britain
Scottish independence: Nationalist leader Jim Sillars threatens pro-union companies with 'day of reckoning' after independence
Portuguese academic says British are 'filthy, violent and drunk'
Scottish independence: David Cameron is becoming the 'George Bush of Britain'
iJobs Money & Business
£18000 - £23000 per annum + Comission: SThree: The SThree group is a world lea...
£18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...
£20000 - £25000 per annum + OTE £35,000 first year: SThree: The SThree group i...
£20 - 24k (Uncapped Commission - £35k Year 1 OTE): Guru Careers: We are seekin...
Day In a Page
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony