FSA ban traded life policy investments without approval from parliament
Dear Mr Lilley
Re: Proposed amendments to the Draft
Financial Services Bill
I refer specifically to the letter sent to you by Andrew Tyrie, Chairman of the Treasury Committee Treasury Committee, dated 25th October 2011, read more particularly point (8) and the inflammatory statement issued on behalf of the FSA by Margaret Cole on 28th November 2011 regarding ‘high risk’ and ‘toxic’ traded life policy investments (TLPI).
In his letter of 25th October, Andrew Tyrie raised serious concerns about the proposed FCA,
specifically that the body – left unchecked – might go too far “in assuming
that producers of financial services are ‘guilty until proven innocent’ in a
framework with little or no redress against an overbearing regulator” (my italics). He also notes in point (8) that “The FCA will have what may be argued is a draconian new power to ban products”.
Along with many others, I was dismayed and shocked at the FSA’s pronouncement on Monday 28th November (a mere month after Mr Tyrie’s letter to you), regarding TLPI; I refer you to the Financial Times article on the same date:
“FSA warns on ‘toxic’ life settlement funds” read more
The statement is ill-thought out, partial, emotive and uses language unbecoming of a regulatory authority. The apparent evidence for their concern is inaccurate and baseless
and may have far-reaching effects of which they appear to be blissfully
unaware. Concern about TLPI arose as a result of the collapse of Keydata, but
Cole neatly sidesteps the reality that Keydata was a case of out-and-out fraud,
not the underlying investments; a fraud that the FSA manifestly failed to
notice, let alone prevent, despite repeated warnings.
In the statement Margaret Cole warns the financial services industry of its possible ‘first
ever’ ban on marketing a product and its ‘interventionist’ attitude; strong
words from an entirely unelected body whose ‘attitude’ is causing great concern
among many of your elected parliamentary colleagues.
As a director of a financial services firm that was founded nearly 11 years ago on the principles we now refer to as ‘RDR’ and ‘Treating Customers Fairly’, we have always
operated on a non-commission basis where the client pays us directly for
genuinely impartial service and advice, I take exception to the implicit slur
in Cole’s statement that we have “all” been involved in the sale of ‘death bonds’.
The only TLPI we use is the EEA Life Settlement Fund. We have conducted exhaustive due diligence on this fund as well as obtaining further evidence from larger investment
companies who have deeper pockets and more resource than we have, to satisfy
ourselves in every respect that the fund is run in a fit and proper manner. For
the FSA, on a whim, with no foundation, to arbitrarily condemn their company
and its product is quite breathtaking.
As a result of their outrageous, unfounded announcement, EEA has had to suspend dealing. If and when the firm is able to resume activity, the likelihood is that they will
have to liquidate their holdings at distressed prices, meaning that investors
will not get back all (any?) of the money they invested and the FSA will be
able to smile smugly and say ‘I told you so’.
The key point is that the FSA consultation on life trade policies is still open, but the FSA have pronounced their verdict before the consultation is anywhere near complete,
(guilty until proven innocent). They have in addition announced that they
will ban the selling of these policies before they know if they will have that
power in the FCA – all of which is still under consultation.
It would seem that the FSA is trying to prove that these investments are unsafe by saying they will ban them and that they are ‘toxic’, to make certain that
traded life settlements will actually fail. The FSA can then say that they have
been ‘proved right’ and insist that the new FCA is granted draconian powers to
ban products without fair consultation and discussion with advisers.
It is interesting that this is happening when the FSAs replacement – the FCA – is having its remit and extent of powers discussed in the Financial Services Bill in parliament. It is timed perfectly and deliberately in order that the FSA can insist that the FCA has
these draconian powers to ban products without proper consultation and
discussion. Further evidence of the FSAs intent is that the Financial
Services Bill is being rushed through and is expected to become law by
Cole and her team are well aware that with the Christmas break nearly upon us, there is little time left before the proposed implementation of the Bill in February.
Their action has not been in the public interest. It has been to destroy a whole sector without regard to those who are beyond reproach and have spent years of dedicated hard work to promote professionalism and the financial well-being of their clients.
If parliament does not take heed, the new FCA will have all the draconian powers they need and will be able to act without any threat of redress or accountability. The regulator is supposed to act in the best interests of the consumer, but this example of TLPI demonstrates they are doing anything but.