The European Life Settlement Association has welcomed the frank address given by the UK Financial Services Authority at the Elsa/Lisa European Life Settlement Trade Mission in London.
At the centre of the regulator’s comment was some concern relating to disclosure and the quality of marketing materials relating to traded life policy investments – the FSA’s collective term for products that invest in traded life policies, senior life settlements or viatical settlements.
The FSA suggests that much more detailed and prominent risk warnings should be carried within providers’ literature, accompanied with illustrations as to the conditions under which a product will perform and how this may be affected.
Elsa has been working on a code of practice that will be launched in the coming weeks and has been in discussion with the regulator making clear the scope of the guidelines as part of the process.
However, the FSA also made clear that it did not inherently oppose the use of life settlements by sophisticated retail investors. Moreover, when asked expressly about whether it supported the view of the American Council of Life Insurers, which recently attacked the existence of the secondary market by calling for a securitisation ban, the regulator made clear that there was no reason to restrict securitisation, attributing life insurers’ opposition to simple vested interest.
Patrick McAdams, investment director at SL Investment Management and Elsa chairman, says: “Elsa has been determined to bring transparency to an industry that admits it has not always got it right in the past. We welcome both the dialogue and the commitment from the FSA, in particular its assertion that it is intervening earlier by shifting its focus upstream for all complex products, including those backed by life settlements. Ever since its formation last year, Elsa has been championing greater regulatory consideration of this sort, which would force much more detailed consideration and disclosure of asset risks and how these are managed.”
Doug Head, executive director at the Life Settlement Association, adds: “Banning securitisation would force direct ownership of policies on retail investors looking to get into this market. This is risky as owning all or part of a single policy lacks the necessary diversification investors require. By contrast, the popular classic fund structure, in which shares or bonds are issued relating to a pool of hundreds of policies, provides a source of much greater diversification and thus protection. In short, securitisation is essential to protect ordinary investors who wish to invest in traded life policies safely.”