Out-Law News 2 min. read
26 Sep 2014, 5:03 pm
The Financial Conduct Authority (FCA) said that some investors were "likely to have been mis-sold" the product, and urged them to complain to the firm that sold them a stake in the fund before 1 December 2014, when the deadline for making complaints or claims begins to expire. The EEA Life Settlements Fund is an unregulated collective investment scheme (UCIS) made up of traded life policy investments (TLPIs); sales of which to retail investors have since been banned.
In an alert to regulated firms, the FCA said that those that advised their clients to invest should check their compliance with guidance issued by the Financial Services Authority (FSA) in 2012. This guidance recommended that TLPIs should not be sold to retail investors due to their complexity and risk, and asked firms to assess their previous sales for compliance with regulatory rules and principles.
"If firms have not yet acted on the 2012 guidance, they should do so now," the FCA said in its alert.
"Action is important as we believe some investors may be disadvantaged if firms have not already reviewed past sales. The circumstances will be different for each investor, but some may face a deadline on when to make complaints ... If firms do not act on our guidance, they may be failing to pay due regard to the interests of their customers or to treat them fairly, which could lead to regulatory action," it said.
The EEA Life Settlements Fund is a Guernsey-based UCIS which was previously listed on the Channel Islands Securities Exchange. It is made up of TLPIs, which are commonly known as 'death bonds' and are investments in life insurance policies, typically of US citizens. Trading in the fund was suspended in November 2011 following the FSA's intervention in the market for "toxic" TLPIs.
The promotion of UCIS and similar products, including TLPIs, to ordinary retail investors has been banned by the regulator since 1 January 2014. UCIS is the general term for collective investment schemes that are not subject to the same rules governing borrowing powers, disclosure of fees and conflicts of interest, and investor safeguards as would be the case if they were regulated. In many cases, UCIS appear to offer better returns than more traditional investment types, but they tend to carry higher risks.
The FCA said that those investors who believed that they had been mis-sold the product should first attempt to contact the firm they purchased it from. Firms should "have a procedure to follow to resolve matters with you in a timely fashion", it said. Investors should contact the Financial Ombudsman Service (FOS) if the complaint is not resolved to their satisfaction, while the Financial Services Compensation Scheme (FSCS) may be able to help if the firm has gone out of business, the FCA said.
Firms that uncovered problems after reviewing sales of investments in the EEA Life Settlements Fund should contact affected customers and "consider whether, and how much, redress is appropriate", the FCA said. Firms that discovered a "significant" amount of mis-selling should also contact their FCA supervisor, it said.
"In light of the fact that EEA's Life Settlement Fund was marketed to institutions and IFAs rather than direct to retail investors, most claims are likely to lie directly against IFAs for breaches of the Financial Services and Markets Act (FSMA) and common law duties to their clients, Complaints are likely to be made to the FOS or in the High Court. Many IFAs will have already notified potential claims to their professional indemnity insurers, but outstanding issues may remain – specifically around the issue of aggregation," said insurance litigation expert Ravi Nayer of Pinsent Masons, the law firm behind Out-Law.com.
"In light of the apparent health of the EEA Life Settlement Fund before its suspension in November 2011, which was directly linked to the maturation of the underlying life policies, it remains to be seen whether there is any significant scope for IFAs to argue that any breach of duty was not causative of investors' losses but rather was caused by the FSA's alarming guidance on TLPIs," he said.