On 24 February 2010, Peter Smith, Head of Investments Policy in the Conduct Policy Division of the FSA, made a speech to the European Life Settlements Association clarifying its approach to TLPIs.

The speech emphasised the risks inherent to those types of products, which it views as complex products suitable only for sophisticated investors. Mr Smith set out a list of some of those risks, which the FSA regarded as real and significant:

  • longevity risk
  • volatility of returns
  • liquidity risk
  • counterparty risk in relation to the life insurers which issued the policies
  • tracking of the insured lives.

The speech drew attention to the application of the Treating Customers Fairly outcomes, particularly that the product and services are designed to meet the needs of identified consumer groups and are targetted accordingly. Mr Smith emphasised that it was the responsibility of TLPI providers to ensure that appropriate risk mitigation strategies, including stress testing, were in place from the early stage of design, including due diligence on counterparties, robust tracking controls and realistic maturity models.

The FSA has identified that the compliance regime in firms governing the distribution of TLPI products has the potential to be weak and the speech underlined the responsibility of product providers to highlight the risks in TLPIs to ensure that they were not missold by independent financial advisers (IFAs). In the FSA's view, the financial promotions of some providers of TLPIs to IFAs has fallen below the required standards.

To read the text of the speech, please click here.