The Association of Independent Financial Advisers (Aifa) is calling on the European Commission to retain the UK's professional indemnity waiver.
Chris Cummings, director general of Aifa, has visited Brussels to argue for greater flexibility in the professional indemnity (PI) requirements of the Insurance Mediation Directive (IMD), as it imposes PI on IFAs at a much higher level.
Under the Financial Services and Markets Act (FSMA) firms can apply for a waiver from the rule requiring them to have PI, but the Financial Services Authority (FSA) will not grant a waiver to firms caught by the IMD.
The waiver enables firms to do a trade-off between capital and PI, but there is no such trade-off in the IMD. Cummings is calling on the European Commission (EC) to introduce the UK waiver system to the directive so it applies to all IFAs across the whole of Europe.
He states: “The EC’s attitude was not very helpful. Once they recognised the problem they thought it was a UK-only issue and was due to FSA action. They said they will think more about it.”
The UK implemented the directive on 1 January last year but six member states have yet to implement it.
Cummings has asked the EC whether they have done any economic modelling of the European PI market, as he believes the IMD’s PI demands, together with those of the Markets in Financial Instruments Directive (MiFID), could create a potential for problems if there is a natural disaster or a terrorist attack.
Since visiting Brussels, Cummings has discovered the IMD may contain a flexible capital guarantee which the FSA has not made use of. He says Aifa will look into this and seek clarification from the regulator.
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Emily Perryman on 020 7968 4554 or email [email protected].IFAonline
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