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Additional cash requirement for firms with PI exclusions

Firms with business lines excluded under their professional indemnity insurance will have to hold a minimum level of additional capital resources.

The regulator estimates 2 per cent of firms will need to hold additional capital resources to cover their PI exclusions under the proposals. It says this will require total additional capital of £1.6m during benign periods, with firms having to hold additional capital resources of at least £67,000. But it says when PI is harder to obtain, these requirements will impose higher costs. It says additional costs to advisers at 5 per cent PI exclusion rate would be around £4m and at 20 per cent £15.9m, working out at £168,000 and £668,000 each.

PYV managing director Neil Pointon says firms, already forced to hold at least an additional £10,000 in capital, may struggle to also cover any PI exclusions they may have.
He says: “The question is whether IFAs are liquid enough to cover the extra needed. The FSA clearly believes they are but I am not sure.”

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