British regulator to fine 'death bonds' boss $116 million

By Matt Scuffham

LONDON (Reuters) - Britain's financial regulator announced on Tuesday a decision to fine the boss of a firm which sold so-called "death bonds" 75 million pounds ($116 million), the biggest penalty it has ever handed to an individual.

The Financial Conduct Authority (FCA) said it would impose the fine upon Stewart Ford, former chief executive of Keydata Investment Services.

It also handed fines of 4 million pounds and 200,000 pounds respectively to Mark Owen, former sales director at Keydata, and Peter Johnson, its former compliance officer and said the individuals would be banned from roles in the regulated financial services market.

The decisions are pending an appeal by the individuals to the Upper Tribunal, an independent judicial body which reviews cases when firms or individuals are unhappy with the FCA's decision.

Some 30,000 people, mainly pensioners, ploughed over 450 million pounds into Keydata Investment Services, which offered death bonds in Britain and was shut down by the regulator in 2009, after many investors lost much of their life savings.

Death bonds, or traded life insurance policies, are high-risk investments which depend in part on the death of the original insurance holders, often wealthy former professionals living in the United States.

The industry, which sells bonds linked to a traded portfolio of such policies, has a reputation for extracting large commissions and, coupled with the longevity of the rich, actual returns can fall far short of those promised by sales staff to often elderly investors.

The FCA said the products were sold to customers as if they were eligible for inclusion in Britain's tax-free individual savings accounts (ISAs), when in fact that were not allowed to be held within such products.

The regulator said the three individuals permitted Keydata to sell the products to retail investors when they were aware that it was highly likely the products did not comply with ISA regulations.

It also said the products were promoted in a misleading way and the due diligence on them was inadequate.

The FCA said on Tuesday that Ford, Owen and Johnson failed to act with integrity and misled its predecessor, the Financial Services Authority, on a number of occasions in relation to the performance of the products.

The regulator said Ford and his family received 72.4 million pounds in fees and commissions following the sale of the products and Owen received commissions worth 2.5 million.

Ford, Owen and Johnson could not be reached by Reuters for immediate comment.

($1 = 0.6491 pounds)

(editing by Simon Jessop and Jason Neely)