By Huw Jones LONDON (Reuters) - Britain's financial watchdog has fined investment adviser Chase de Vere 560,000 pounds ($875,800) for failings in the way it sold so-called "death bonds" worth 49 million pounds ($77 million) to nearly 3,000 people.
The bonds promised high returns generated by pools of second-hand U.S. life insurance policies, which generated an income stream as their original owners died and insurance companies paid out on them.
Yet the Financial Conduct Authority (FCA) said on Monday Chase de Vere, part of insurer Swiss Life (VX:SLHN), did not research the products, originated by a company called Keydata, well enough to understand and explain the level of risk they posed to customers.
"Firms need to ensure that they fully understand and explain to customers the risks of investing in the products they are offering," the FCA's director of enforcement Tracey McDermott said in a statement.
The pools of policies were created by the original holders, often wealthy former professionals, selling out, leaving the insurance company buyer to continue paying the premiums and running the risk of the sellers living longer than expected.
Chase de Vere would have been fined 800,000 pounds if it had not agreed to settle early. The firm said it was disappointed to have been fined and shortcomings were rectified some years ago.
The financial advisor had between August 2005 and June 2009 sold 3,846 Keydata life settlement products to 2,806 customers who invested a total of 49.3 million pounds.
Keydata was shut by the regulator in 2009.
Britain's Financial Services Compensation Scheme has paid out to Chase de Vere customers up to the scheme limit, which was 48,000 pounds per customer at the time.
But 139 customers invested a total of 4.4 million pounds over the scheme limit and most of these people may not recover the full losses from their investment, the FCA said.
It added that Chase de Vere had agreed to review its sales to any customers who have not already made a claim about Keydata and to provide redress where appropriate.
(1 US dollar = 0.6394 British pound)
(Editing by David Holmes)