The Action Group for Life Settlement Fund Investors claims the regulator breached the UK Financial Services and Marketing Act and the European Convention on Human Rights.
It has given investors until the 14 February to register their participation in the class action proposals.
The action is driven by a notice issued by the FSA (now FCA) in November 2011, two months prior to the end of its consultation on life settlement funds.
The regulator claimed the investments, which trade life insurance policies on terminally ill US citizens, were “high risk, toxic products that are generally unsuitable for the majority of UK retail investors and should not be promoted to them”.
The notice prompted the immediate suspension of many life settlement funds, such as the EEA Life Settlements Fund, which is currently in “run-off” mode with no new investments and severe restrictions on redemptions as investors continue to wait to receive back their investments.
The FSA subsequently acknowledged that the “publication of [its] guidance consultation may have prompted a number of investors to request redemption from funds”.
Action
The Action Group for Life Settlement Investors was set up in February last year with the aim of recovering compensation from the FCA for the loss of access to investments, subsequent added value, and a consideration for the distress caused by the announcement.
It believes that the announcement constituted “unprofessional behaviour and a serious failing in the regulator’s duty of care towards investors”.
It alleges that the regulator breached section 6(1) of the Human Rights Act, which states “it is unlawful for a public authority to act in a way which is incompatible with a convention right”, and “every natural or legal person is entitles to the peaceful enjoyment of his possessions”.
It says that in issuing the notice without completing its own consultation period or making reference to specific products, the FSA “failed in its duty of care to investors”.
In a notice regarding the action, the EEA Investors’ Group, which represents investors in the EEA Life Settlements Fund, said: “This directly led to the suspension of at least one fund and caused investors to be denied the peaceful enjoyment of their possessions.
“The UK Government is therefore responsible for the consequences of actions taken by the FSA and it falls upon them to compensate investors for the financial and emotional distress caused by its actions.”
It added that investors have “nothing to lose and everything to gain” by registering to participate in the proposal.
“Continuing to harm advisers”
In September, the EEA Investors’ Group, criticised the FCA for “continuing to harm” advisers by encouraging investors into life settlements funds to “make a complaint to the firm which sold them the investment” earlier in the month.
The Group said the regulator should have worked to prevent life settlement funds from being sold incorrectly rather than “continuing to harm UK IFAs and investors by invoking lengthy and expensive compensation proceedings”.
The EEA Life Settlements fund was launched in 2005 and purchased 926 policies on the lives of United States persons with life expectancies of two to four years.
In 2013, following its suspension, EEA announced that the fund would be devalued by 20% due to a reassessment of the outstanding policies.
It announced restructuring proposals in September 2013, and these came into effect from January 2014.
Although investors and the Guernsey regulated approved the restructure, the Channel Islands Securities Exchange Authority subsequently refused to relist the EEA shares, which are not currently quoted on any stock exchange and can only be redeemed on the terms specified in the restructuring documents.
