The Financial Services Authority (FSA) has raised concerns over the disclosure and marketing of Traded Life Policies (TLP) and has warned providers and advisers that they face "significant risk" to their reputations if they fail to sell or advise on TLPs properly.

The FSA made the announcement at the European Life Settlement Association's (ELSA) London leg of its trade mission, in conjunction with the US Life Insurance Settlement Association (LISA), on 24 February 2010. Peter Smith, head of investments policy at the conduct policy division at the FSA, told delegates that the watchdog views TLPs as "complex products with a number of inherent risks". He added that TLPs are only suitable for "sophisticated investors", and expressed concern at certain abuses within the industry, such as the miss-selling of TLPs to advisers who do not properly understand the product or to end-users who do not already have a diversified portfolio.

Smith suggested more prominent and clear warnings of the risks, and more realistic performance illustrations. He also commented on the FSA's "great concern", in the run up to the Retail Distribution Review (RDR), at the "commission rates being offered to advisers which are well out of line with market norms". Smith confirmed that the FSA is taking a particular interest in the TLP market and will continue to monitor the provision, marketing and uptake of these products, moving their regulatory activities "higher in the value chain" into "product design and marketing by providers to distribution firms".

SL Investment Management's chief executive, Jeremy Brettell, applauded the FSA's renewed focus on the sector because ultimately "it will help to separate the wheat from the chaff".

"Some of our competitors have been claiming returns based on over-inflated valuations that we simply cannot sanction," he said.

Brettell explained there are three key issues to address: valuation methodology, transparency and the educational aspect of this relatively new asset class. "We are aware that education is an important part of raising levels of understanding of the asset class and we will support the FSA in any way we can - whilst at the same time asking that not all companies are tarred with the same brush."

ELSA, the organisation that launched the mission, welcomed the FSA's commitment to looking at the product, and especially the shift in its focus upstream for all complex products. Patrick McAdams, investment director at SL Investment Management and also ELSA chairman, commented: "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. This would stretch from product design through to distribution, and ongoing due diligence and management of the investor relationship.

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