International Association of Risk and ComplianceProfessionals (IARCP)
1200 G Street NW Suite 800 Washington, DC 20005-6705 USA Tel: 202-449-9750 www.risk-compliance-association.com
Dear Member,Do you know thatinvestor in Londonarebetting on whena
particular set of US citizens will dieand, if these people live
longer than anticipated,
the investment may not function as expected
… and that the UK
Financial Services Authority (FSA) has confirmedguidance that this is ahigh risk productthat shouldnotbe promoted to
the vast majority of retail investors in the UK? We live in (mad) financial times.
These “high risk products” are
called Traded Life Policy Investments (TLPIs). Yes, risk management is veryimportant. The risk is that policyholders will not die the day we wantthem to die.Investorshope to benefit by buying the right to the insurance payoutsupon the death of the original policyholder.
Well, we speak about London, let’s see the interesting definition of
theshadow banking sectorfrom Mr Paul Tucker, Deputy Governor forFinancial Stability at the Bank of England, (speaking at the EuropeanCommission High Level Conference, Brussels, 27 April 2012).He said that
“shadow banking” is not the same as the non
-bank financial sector.For example, the vast majority of hedge funds are not shadow banks,
and don’t trade in the credit markets or especially illiquid markets.
Also,non-bank intermediation of creditis not a bad thing in itself.Indeed, it can be a very good thing, helping to make financial servicesmore efficient and effective and the system as a whole more resilient.But, as we know from this crisis and from previous ones, true shadow banking can weaken the system.Regulatory arbitrage, which is always with us, can distort and disguise channels of intermediation.Shadow banking comes inlots of shapes and colours.There aredegrees
to which any particular instance of shadow banking replicates banking.