IFAs could be left with most of the liability of future FSA mis-selling reviews as the latest propos...
IFAs could be left with most of the liability of future FSA mis-selling reviews as the latest proposals for PI insurance contract reforms would not cover costs and compensation of new reviews.
Reform of the 'Compliance Clause' under IPRU 13(2)E could be reworked so that PI insurers will only have to cover liabilities if they relate to FSA rules set before the PI contract was signed or renewed, say proposals set out in paragraph 4.13 of CP169.
"Additional Clauses, 1 Compliance Clause will be amended so that the minimum insurance requirements are those under the rules relevant to personal investment firms at the date of the PII policy's inception or renewal, and that any subsequent rule changes will not apply" says CP169.
Changes are being proposed so the PI underwriter no longer has to assume they hold an open book on liabilities when trying to price policies, according an FSA spokesman.
This might encourage underwriters to provide PI cover to IFAs, says the FSA, however, this could still leave intermediaries with higher PI premiums the following year as any new rules or review risks are likely to be taken into account when the PI underwriter renews the policy.
But this could also come after the IFAs have begun paying for any legal, compliance or compensation costs which could come with any new review.
It is one of the ideas set out by the FSA for the reform of the professional indemnity market, along with suggestions that IFAs will have to carry the weight of any litigation legal costs as part of its PI policy excess, rather than allow all defence costs to be included under their PI insurance policy.
Additional ideas laid out by the FSA recommend a two-tier PI system be created to give advisers the option of covering their PI liability requirements at the basic level, but opt to buy enhanced PII cover which is seen to carry an FSA-recognised 'kitemark'.
While the FSA puts this forward asa proposal, Kenmir and his team - through the consultation document - voices reservation about the safety of such plans, because it could cause IFAs to become insolvent under the strain of insufficient PI cover, in turn leaving consumers vulnerable.
IFAs which belong to a larger firm could place its liabilities on the parent or on another IFA firm, continue proposals under Chapter 6 of CP169, rather than buy PI, providing the larger firm has sufficient capital resources and guarantees to pay.
It is also stated that the FSA would assume an IFA does not have professional indemnity cover and is in breach of FSA rules unless they inform the FSA of PII gained or of plans to self-certify, as laid out last November.
Email the editor with your comments on this or any other issue by clicking thru the right-hand link.
Putting the tech into protection
Square Mile’s series of informal interviews
Fallout from Haywood suspension
Launching later in 2019
£80bn funds under calculation