In November 2011, the then Financial Services Authority in the UK, made an announcement that traded life policy investments were “high risk, toxic products that are generally unsuitable for the majority of UK retail investors and should therefore not be promoted to them”.
The Action Group for Life Settlement Fund Investors, many of who were invested in the Guernsey based EEA Life Settlements Fund, the largest traded life policy fund, argue that making such an announcement caused a run on the fund. The group also note the FSA made this statement despite it being more than two months away from the end of a review of the product.
In the weeks after the FSA had made its statement, the EEA Life Settlement Fund was suspended, with the board citing high retail and institutional redemption requests as the reason.
The fund’s suspension was lifted on 1 January 2014 and late last year the Guernsey Financial Services Commission gave the green light for the vehicle to be split, as part of a scheme to release some value for investors.
Following the suspension, the FSA went as far as to admit that its guidance “may have prompted a number of investors to request redemption from funds”.
The action group makes six clear arguments as to why the FSA, and therefore the UK Government, has a case to answer. These can be summarised as follows:
1) Harm was done to investors whose interests the FSA had a statutory duty to protect
2) The FSA was guilty of unprofessional behaviour and a lack of care by making an announcement before the conclusion of their consultation period
3) The consultation failed to seek the views of the largest fund in the sector they claimed to be investigating
4) Inadequate complaints procedures were in place to oversee the FSA which was supposed to be a standard bearer of best practice.
5) The Human Rights Act 1998 Section 6(1) states that “it is unlawful for a public authority to act in a way which is incompatible with a Convention right”. Under Article 1 of the First Protocol: “Every natural or legal person is entitled to the peaceful enjoyment of his possessions.”
6) In making the announcement that TLPIs were ‘high risk, toxic products’ without reference to the leading fund that had demonstrated the contrary beyond reasonable doubt over a sustained period, and without completing their own consultation period, the FSA acted unprofessionally and failed in its duty of care to investors.
To join the action group or for further information visit the Action Group for Life Settlement Fund Investors blog here
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This story was updated at 15:00 on 5/02/2014 to reflect the fact that the EEA fund suspension has been lifted
