All financial intermediary firms will be required to hold professional indemnity insurance, whether ...
All financial intermediary firms will be required to hold professional indemnity insurance, whether they conduct regulated or non-regulated business, says the FSA's latest consultation on PII.
Having produced an about-turn on the use of a waiver if the firm has a high-enough market capitalization, the FSA now says PII policies will have to cover "claims arising from both a firm's regulated and unregulated business" and for any loss or damage for which the firm is responsible, including occasions when another firm acted on its behalf.
Details of CP193 - Professional Indemnity Insurance for personal investment firms: proposed policy and rules - say the specifics of rules will not be set down but firms must at least ensure they have sufficient finance set aside from their PI cover to meet their excess levels agreed with insurers and any other exclusions that might be signed.
Firms who do hold a PII policy with excess of £5000 or less will not be required to hold additional financial resources, says the FSA, as it is believed - based on FSA analysis of its own records - that most companies can afford to settle at least two claims against the firm of £5000 from their own reserves or income.
But anyone who chooses to carry a higher excess on their policy must make sure they have sufficient 'readily avilable' reserves - such as cash, investments and securities - which can be accessed within 90 days.
Policy exclusions can also be allowed in agreement with the insurer - although the FSA says it would prefer there are no exclusions - providing that directors of the company set aside sufficient financial resources to cover the additional costs that might be incurred.
However, anything which might be seen as "crystallized" or identified liabilities, as a result of regulatory action cannot be excluded under new rules 13.1.4(10)E(a)(iii).
Likewise there are virtually no exemptions to holding PII unless, for example, it a firm is related to others with the same group, such as members of the same banking group, building society or insurer.
In those cases, it is assumed sister companies will cover any additional liabilities if necessary through "comparable guarantees", says the FSA.
Similarly, it will be up to the companies involved in group policies - perhaps because it cuts the cost of administration to group several firms together under one policy - to let the FSA know if the minimum aggregate is breached because it will be up to all companies within a single policy to make sure everyone has sufficient cover.
An example offered by the FSA suggests if firm A and firm B buy a joint policy with an aggregate limit of Euro2m, and firm A uses up Euro1m, both firms will be responsible for letting the FSA know about the decreased cover as they would have breached the minimum limit of Euro 1.5m.
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