fsa chair says PII is not an issue regulator can solve on its own and urges further discussion
FSA chairman Howard Davies has said professional indemnity insurance (PII) is not an issue the authority can resolve on its own but acknowledged there is a regulatory dimension to the problem.
Speaking at the first ABI annual conference last week, Davies told delegates it has become clear there is a significant market problem with PII.
There is evidence of difficulties across a wide range of employer liability, directors and officers insurance, and the cost of such insurance for accountants, lawyers and other professionals has risen by just as much, if not more, than it has for intermediaries, the FSA argues.
However, the intermediary community believes it has been harder hit because of the threat of further costly compensation bills to be paid with the shadow of the pensions review remaining over the market and with insurers concerned about the possibility of further retrospective reviews.
Davies did little to assuage this belief, commenting: 'We have regularly been surprised over the past few years at the number of cases of mis-selling and unsuitable advice we have encountered.
'I would have thought that paying out over £11m in pensions compensation would have focused the minds of firms more on the need to be sure that their selling practices are compliant and ethical.'
Davies said there are still sections of the industry that pay too little regard to the basic principles of treating customers fairly.
In case after case the FSA is still finding examples of products with risk characteristics not properly spelt out and financial promotions, calculated to mislead. One result of this is that the FSA believes it is very difficult to reform the industry although it is keen to facilitate products that offer fair deals to customers.
He said: 'We have shown that if genuinely simple and low risk products can be devised, we are ready to adapt our regime accordingly.'
However, the response of the consumer panel last week on the FSA's proposals on the possible regulation of stakeholder products shows many knowledgeable observers of the market are unconvinced that simple products can be removed from regulation entirely.
'If firms do not pay sufficient regard to suitability, consumers are bound to be suspicious. This, in my view, is probably the key issue in financial regulation which we need to resolve over the coming months,' Davies said.
The FSA is currently preparing material to do more to clarify what it defines as mis-selling.
John Tiner will shortly be writing to ABI and Aifa members, setting out the FSA's views on the issue and the regulator is proposing a discussion on it after Easter, which will also involve consumer groups.
Also speaking at the ABI conference was Ron Sandler, who defended his stance on the capping of charges attached to regulated products.
Davies had questioned the concepts of price controls on financial products, arguing that caps were anti-competitive.
Sandler said the industry needs to create products with a regulated risk profile with face-to-face advice for those on lower incomes. What the cap on charges ultimately is, said Sandler, is for the consultation that is taking place to decide.
fsa advice to intermediaries
The FSA has written to intermediaries ahead of their PI cover expiring. Advice to intermediaries being given to IFAs by the FSA has been:
1) Take all reasonable steps to obtain compliant cover and if obtained self-certify this to the FSA. IFAs can do this when the insurance broker has informed them that they have cover on risk, but intermediaries must ensure that they have all of the information they need to complete the form correctly.
2) IFAs must also tick the box to apply for the Modification (to the FSA's requirements in relation to PII) if they need this.
3) As conditions in the PI market are changing almost daily, if intermediaries experience problems obtaining cover they should continue trying.
4) If after a full market survey the IFA can only obtain cover that does not comply with the Evidential Provision but believes that the firm has sufficient liquid assets as an alternative to the non-compliant element, the IFA should approach the FSA with regard to individual guidance.
5) If the above steps fail the IFA must either: apply to temporarily suspend regulated activities by applying to vary the firm's Part IV permission by having a requirement placed on it so that IFA has further time to obtain cover; or apply to cancel the firm's Part IV permission.
First mentioned in Cridland Report
Second acquisition of 2019
Guy Opperman has rejected calls to speed up changes to auto-enrolment (AE) despite increasing pressure to boost contribution rates and overall savings pots.
Four key areas to focus on
And 94% for critical illness