Life Settlement Funds

In 2008, the collapse of international financial markets left experienced investors with significant losses and uncertainty about where best to locate their funds. Inexperienced investors facing significant reductions in their life savings and pension funds were even more vulnerable, especially if old age left only a limited number of years during which they might recover to create the money they would need to live on for the rest of their lives.

Reviewing the options, the EEA Life Settlement Fund demonstrated a sustained track record over several years of delivering a steady 8% per annum with a vehicle that was relatively unaffected by the rest of the financial markets. Investors were informed that the fund operated by purchasing Life Policies in the USA from people with terminal illnesses who would otherwise receive a derisory settlement from their insurers. By offering the freedom to accept a more substantial payment that may allow the terminally ill to more fully enjoy their remaining years, the fund seemed highly ethical.

There were no advisory notices from the then Financial Services Authority (FSA) or the Guernsey Financial Services Commission (GFSC) where the fund was set up and EEA Fund Management (Guernsey) Limited is licensed, so investors had no reason to doubt the ethics of the fund or the management practices of the fund administrators. EEA Fund Management Limited was authorised and regulated by the Financial Services Authority (“FSA”).

What was not generally known to inexperienced investors was that other funds trading in Life Policies existed and that some of their management practices were not up to the same standard. However, it is fair to say that in most business sectors there are well run and badly run companies and a person or business would not usually be expected to refrain from doing business with a well run company simply on the grounds that rogues also existed in the industry.

EEA provided an ethical investment fund with a dependable track record over a significant period and no regulatory bodies warned investors that the fund should be avoided. The following extract is taken from the EEA Fact Sheet published in August 2011 and shows the monthly performance of the fund between November 2005 and July 2011. This was not a fund that was failing investors, nor was it at risk other than from the conduct of the FSA.

The Role of the Regulators

Between 2005 and 2011 EEA Life Settlements conducted its business authorised and regulated by the FSA and approved and licensed by the GFSC. During that period, both regulators were fully aware that private individuals were placing their savings with this fund. Without warning, whilst a consultation was still in progress, the FSA issued a statement labelling all such funds as ‘toxic’ and unsuitable for ordinary investors. They did so in the full knowledge that their action might cause a devastating run on this and other Life Settlement funds.

“the FSA, the UK’s financial services regulator, has a statutory duty to protect consumers.” Sir Anthony Holland, Complaints Commissioner, 12th January 2012.

The principle duty of care and the professional conduct of any regulatory authority must be the protection of consumers, but what recourse is there when the regulator itself is the source of the damage to consumers? Those organisations entrusted with the role of governance over an entire industry must be seen to follow the highest standards of best practice. If they fail, those who give them their authority must be held accountable.

In addition to what must surely be regarded as unprofessional behaviour by the FSA, the local regulator in Guernsey has been conspicuous by the absence of any action on behalf of investors. In the period of over two years since the suspension of a fund they regulated and an investment firm they licensed, they have made no attempt to contact the investors who have been denied access to their savings. The 1987 Protection of Investors (Bailiwick of Guernsey) Law spells out the principle duty of care of the local regulator, the Guernsey Financial Services Commission (or GFSC) as;

“2A. In carrying out its functions under this Law the Commission must have regard to the objectives of –

(a) protecting –

(i) investors,

(ii) the public, and

(iii) the reputation of the Bailiwick as a financial centre..”

As this ongoing debacle becomes publicised and the lack of protection for investors is revealed, the reputation of the Bailiwick can only be harmed.