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TLPIs are toxic products which pose significant risks for retail investors, says FSA

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The Financial Services Authority (FSA) has issued guidance to warn that traded life policy investments (TLPIs) are high risk, toxic products that are generally unsuitable for the majority of UK retail investors and should therefore not be promoted to them.

TLPIs are known as ‘death bonds’ because investors are putting their money into a pooled investment or fund which invests in US life insurance policies. Basically, a TLPI investor is betting on when a particular set of US citizens will die and if these people live longer than expected then the investment may not function as expected.

Evidence from the FSA’s work to date has found significant problems with the way in which TLPIs are designed, marketed and sold to UK retail investors. Many of these products have failed, causing loss for UK retail investors. 

Margaret Cole (pictured), FSA managing director, says: “TLPIs are toxic products which pose significant risks for retail investors. The failure of these products in the past has led to significant consumer detriment and we fear new investors will suffer unless we take the necessary steps now to prevent their sale and distribution.

“We are issuing a strong warning to the industry not to market these products to UK retail investors. 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.

“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.

“Products such as TLPIs are not a simple problem for the FSA to address as many of them are based outside of the UK, and so are outside the FSA’s jurisdiction. There are also considerations under EU law that will affect what we can do. However, the FSA is engaging in discussions in Europe around the MiFID review, AIFM Directive and with other European supervisors to find a solution to give greater consumer protection against these products.

“For now, we want to make our message about these products clear – they are completely unsuitable for most UK retail investors.”

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