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PI clawback should fund FSCS, Pimfa says

Adviser trade body Pimfa has called on the Financial Services Compensation Scheme to do more to ensure professional indemnity insurance providers pay up when firms collapse.

Pimfa is calling for a review of how funds are recouped from PII in light of another propsed interim levy from the FSCS this week of £69m.

The £69m deficit for 2018 is expected despite the lifeboat fund’s previous additional £75m levy imposed on life and pensions advisers in April.

Pimfa is calling for a different funding mechanism on behalf of advice firms following the release of the FSCS’s November outlook today in which plans for the levy were set out.

FSCS chief executive Mark Neale is pointing the finger at poor advice on defined benefit transfers leading to increases in Sipp and other pension failures.

Chief executive Liz Field says the FSCS should been made to clarify where money from PI insurance – which should help offset the costs of the scehem – goes, however.

Incoming £69m FSCS levy blamed on DB transfers and Sipp claims

She says: “It is not clear if the FSCS follows through on getting money it pays out back from PI providers, who covered the firms who ceased to trade, which caused the claims to end up with the FSCS.

“Our member firms fund the FSCS through their levy and should reasonably have confidence that the burden of costs from claims settled by the FSCS, whether they relate to defaulting firms or unsuitable advice, are recouped from the PI with the funds recouped used to reduce the financial burden increasing FSCS levies place on member firms.

“Unexpected levy increases of this magnitude cannot be part of a long-term sustainable funding option for the FSCS. Member firms need to be able to plan their own finances and be confident that the relevant regulator is taking pro-active steps to address the root causes of increased claims and not just the symptoms.”

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. I’m not arguing with the principle but what affect would that have on PI premiums?

    • Given that many PI insurers’ policies lapse automatically as soon as an insured firm ceases to trade (even though said firm may well have paid a full year’s premium), the FCA’s new rule that firms may no longer hold such policies will force them to switch to an almost certainly more expensive one that won’t.

      But, as I’ve suggested elsewhere, how many firms will actually comply with this requirement? Unless it demands proof that firms now have fully compliant policies, how will the FCA know of those that don’t? Unless the FCA bans PII insurers from issuing regulated firms with non-compliant policies (perhaps it will) many, I suspect, will retain their existing policy (to save money) and hope they don’t receive a demand to supply the regulator with a copy. Should they do so, they’ll embark on a hasty re-broking exercise and hopefully get their new, compliant policy in a couple of weeks.

      Should they cease trading, those who haven’t secured a compliant policy and who haven’t received any demand to supply proof that they have may simply hope that, having become de-authorised, they’ll be out of reach of regulatory enforcement.

      Phoenixing, though, may have become a somewhat stickier proposition ~ assuming, of course, that the FCA bothers to look into their past, which is by no means a given.

  2. It is not within the purview of the FSCS to ensure that regulated advice firms must hold adequate PII cover. That is down to the FCA, which has recently announced that all firms’ PII policies may not exclude claims from the FSCS or expire automatically the moment the policyholding firm goes into liquidation. Chronically late, as usual, but sound enough.

    That said, how does the FCA propose policing these new requirements? Rogue firms will just declare that they do hold a compliant policy and, unless the FCA calls in a certified copy, it’ll be none the wiser. Even if it does, the firm that’s made a false declaration will embark on a bit of frantic broking to get a fully compliant policy and then submit that. Job done.

    What the FCA STILL hasn’t mandated, though, is that ALL firms’ PII policies must cover ALL areas of activity. But hey, Andrew Bailey (to my mind, incredibly) has said that the FCA isn’t particularly bothered about regulated intermediary firms having incomplete PII cover.

    Excuse me, Mr Bailey, but how is such an irresponsibly laissez faire stance supposed to chime with the claim on its own website claim that one of the FCA’s key functions is to enhance market integrity?

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