AIFA: FSA action on TLPIs caused 'real consumer detriment'

The Association of Independent Financial Advisers (AIFA) has called for the Financial Services Authority to be accountable over its intervention into the traded life settlement investment industry, which the trade body said has caused "real consumer detriment".

The trade body has warned about the implications of the regulator's powers to intervene in the market on specific products and asset classes.

It follows the recent proposed ban by the FSA of the life settlement asset class for retail investors.

Stephen Gay, director general of AIFA, said:"The FSA's recent warning on the life settlement class has already forced one fund to close. This has caused real consumer detriment and may, in fact, have harmed the very people they are seeking to protect."

He said there must now be a review to establish if this closure was likely to happen regardless or if it was the direct consequence of the regulator's intervention.

"This demonstration of the regulator's increasingly interventionist approach does raise more general concerns about the impact it will have on the market in future.

"If the regulator is to have significant product intervention powers, it is vital we know how they will work in practice and how they will assess the impact."

Where the regulator intervenes, the "proportionality principle" is key and the regulator must demonstrate how it has taken this into account in its decision-making, said Gay.

"There are risks that intervention can have a negative impact on innovation and competition.

"The system of accountability for the regulator has relied on internal self-assessment with the result that there have been few external effective checks and balances in place. The FSA must be much more accountable for its actions," he said.

The FSA branded TLPIs "toxic", after several high profile failures in the asset class, most notably Keydata, which cost the financial services industry about £300m in compensation claims.