The UK financial regulator is sticking to its guns in warning the industry against marketing traded life policies to the majority of retail investors, arguing that these are high-risk products.

The guidance is an interim measure, the Financial Services Authority said yesterday; it will shortly consult on new rules that restrict how such “non-mainstream” investments can be marketed.

TLPIs invest in life insurance policies, typically of US citizens. Investors hope to benefit by buying the right to the insurance payouts upon the death of the original policyholder. In other words, according to the FSA, an “investor is betting on when a particular set of US citizens will die and, if these people live longer than anticipated, the investment may not function as expected”.

“The FSA has found evidence of significant problems with the way in which TLPIs are designed, marketed and sold to UK retail investors.  Many of these products have failed, causing loss for UK retail investors. Many TLPIs take the form of unregulated collective investment schemes, which cannot lawfully be promoted to retail investors in most cases, but have often been marketed inappropriately to retail customers,” the FSA said in a statement.

However, the FSA did not elaborate on specific details of which policies failed or give examples of investors left out of pocket.

The FSA’s position has been controversial. The watchdog issued a blunt statement last November, branding such polices as “toxic”. Some of the practitioners in this field, such as Managing Partners and Centurion Fund Managers, broadly agreed that these products are not really suitable for retail clients, at least not yet.

“The TLPI retail market is worth £1 billion [about $1.6 billion] in the UK and we were very concerned that it was likely to grow even more. At the time that we published our guidance over half of existing retail investments were in financial difficulty – even so, we were hearing about the development of new products intended to be sold to UK retail customers,” Peter Smith, FSA head of investment policy, said.

“The threat to new customers was significant and growing: the potential for substantial future detriment was clear. There was a concern that we were witnessing a repeating cycle of unsuitable sales followed by significant customer detriment in the TLPI market. Following publication of the guidance for consultation, this threat has receded,” he said.