FSA urged to retract 'reckless' statement on TLPs

The Financial Services Authority (FSA) should as a matter of urgency retract its references to traded life policies (TLPs) as "toxic", EEA Fund Management has said.

In November, the regulator said it plans to ban the sale and promotion of TLPs because they are high risk and generally unsuitable for most UK retail investors.

It described them as "high risk, toxic products" in a consultation on proposed guidance on TLP investments.

But EEA said the regulator's description was "without merit and reckless".

EEA Fund Management marketed the EEA Life Settlements fund, dealings in which were suspended shortly after the FSA's announcement.

"The use of this term [toxic] implies that all TLPs are harmful to the investor, whether retail or otherwise," EEA wrote in a letter to the FSA this week. "We do not agree with this at all."

"This should not be the case with a well-run and structured TLP where the investor understands the risks."

EEA also took issue with the FSA's use of the term 'Ponzi'.

In its guidance consultation the regulator said that, on some models of TLP, yields are "promised to previous investors, which can only be sustained by using new investors' money, so the model in effect ‘borrows' from itself and therefore appears to share some of the characteristics of a Ponzi scheme".

EEA said: "The FSA's reference to 'Ponzi' is irresponsible. A Ponzi scheme is commonly understood as being fraudulent, and the FSA must realise that any suggestion that a TLP fund is in any way fraudulent is highly damaging.

It said terminology like Ponzi increases the likelihood there will be a run of redemption requests on TLP fund, potentially locking investors' money in the fund while it carries out an orderly wind-down.