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Aifa warns FSA over Arch cru PI threat

Aifa is warning the FSA it has not properly thought through the consequences of its £110m Arch cru consumer redress scheme and Keydata recoveries on the professional indemnity insurance market.

Last week, the FSA published a consultation to set up a redress scheme for 20,000 Arch cru investors. If implemented, IFAs who recommended Arch cru funds will have to review all cases and pay redress where appropriate.

It comes as advisers who sold Keydata Lifemark products are receiving letters from law firm Herbert Smith, on behalf of the Financial Services Compensation Scheme, as part of the legal bid to recoup Keydata costs.

Aifa policy director Chris Hannant says the pursuit of Keydata recoveries from advisers already has PI insurers “running for cover”, with some insurers denying liability.

He says PI insurers are becoming less keen to offer terms to advisers compared with other sectors. He says: “We are concerned about the overall impact this scheme will have on the availability and price of cover. I do not think the FSA has thought through the wider impact on the PI market.”

Capital Asset Management chief executive Alan Smith saw his PI premiums rise by 20 per cent when he came to renew last week. He says: “The feedback from insurers was there seems to be a new trend of firms being asked to compensate where there has not been a complaint. The regulators seem to be making it up as they go along.”

Last month, insurer Chubb pulled out of the IFA PI market, citing profitability issues. QBE pulled out of the market in December while Beazley withdrew last July, saying the market was no longer profitable.

Howden director of retail Neil Pointon says: “Any exercise that draws out claims against the IFA profession will harden the market, not only for those people with direct exposure but it will also have a knock-on effect for other advisers as well. The redress scheme the FSA is considering will not be received well by PI providers because it will highlight that the FSA could undertake this sort of review in any area it chooses. People will continue to be rated on their individual risk. If the market rises, everyone has to pay more but some people will pay more than others.”

An FSA spokesman says: “We would welcome any feedback from PI providers as part of our consultation on the proposed Arch cru redress scheme.”


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There are 20 comments at the moment, we would love to hear your opinion too.

  1. Cant blame the PI insurers – who would provide insurance where the potential liability cannot be quantified and the regulators approach changes with the wind!

  2. Yet another issue that shows the FSA are incompetent and unfit for purpose. This will also stand for the FCA if the FSA do eventually press ahead with this and the FCA does not undo it.

  3. Bet the FSA wont welcome some of the feedback they will be getting despite what the spokesman says!!!

  4. Aifa, for a change, is right. PII could become unobtainable and then what happens?

  5. Joe Egerton - Justice in Financial Services 11th May 2012 at 9:05 am

    In 2009, when the legislation setting up the Consumer Redress Scheme was proposed, I tried to persuade both Mark Hoban and AIFA that this would be very disruptive of the PI market. I am not sure which of the pair is the more stupid or more arrogant but nobody should be under any illusion that the failure of AIFA to campaign hard in 2009 makes their statement today offensive.

  6. They might claim to welcome feedback but they certainly won’t promise to listen.
    The arbitrary and retrospective way they operate would not be accepted in any other field.
    Human rights obviously do not extend to financial advisers.

  7. Derek Bradley ceo 11th May 2012 at 9:05 am

    I am very heartened indeed that AIFA is warning the FSA it has not properly thought through the consequences, but this is battle being fought uphill.

    Without wishing to work metaphors to death, a better playing field could have been established had previous AIFA management adopted a more vocal and possibly confrontational stance.

    Previous attempts to warn the FSA that it had not thought things through reminded me of Geoffrey Howe’s describing Margaret Thatcher’s style during his resignation speech in November 1990.

    He said I recall “It is rather like sending your opening batsmen to the crease, only for them to find that their bats have been broken before the game by the team captain’.

    Who broke the bats?

  8. PI insurers are pulling out of the market and rates are going up (ours by way over 20%). Insurers are generally savvi and so this is indicative of the untenable advice climate in which we currently operate.
    But the elephant in the room for me is the link between PI, the FSCS scheme and the apparent vagueness about what might with hindsight one day be deemed to be “unsuitable” advice. A PI insurer can decide not to renew cover at the anniversary, lets say in the wake of some new apparent “missellling” episode which has them running for cover, meaning that business written now has no PI protection, which in the event of successful “claims” will therefore lead to more firms going under, hence more FSCS claims, more levies, fewer firms, etc. Its almost as if the combination of all parts of the system has been designed to fail.
    It fails both consumers and firms, and the problem is so stucturally urgent that it is teeth grindingly frustrating that inaction prevails. There ARE solutions but there seems to be a lack of urgency to solve this

  9. Exasperated Me 11th May 2012 at 9:18 am

    Time and again we have seen AIFA fail to address the issue of flawed legislation while it is being drafted, examples would be this Consumer Redress Scheme and of course the funding of the FSCS.

    Time for AIFA to shut up shop and for the Council to find somewhere else for them to sit round their cauldron.

  10. Soren Lorenson 11th May 2012 at 9:28 am

    I’m no fan of AIFA….BUT this is the first time in living memory that they have had a go at the FSA. I know its much much too late and they are probably doomed anyway but if they were to start standing up for IFA’s like you might have expected an IFA trade body to do all along they might even find a purpose for themselves going forward.

  11. And the more IFA’s leave the business the remaning IFA’s are left with bigger FSCS bill!!!!!! s

  12. At last AIFA is standing up to the FSA but I wish they had done it sooner. Having said that, if they continue to do so I can see us getting behind them and being worth their fees. AIFA……. It’s ‘crunch time’!

  13. I invested an Arch Cru after taking advice from an IFA with many years experience in the business. Obviously I have been following developments with a keen interest over the past three years with increasing despair, but for the first time I feel there may be a light at the end of the tunnel. From my view (as a complete layman) it seems this latest move has been a huge mistake on the part of those wishing to let Capita of the hook. It is just a step too far and unsupportable in light of how little evidence has been provided to prove that Capita, the FSA and other concerned parties did their jobs properly. The attitude of the FSA now smacks of desperation in an effort to avoid facing up to mistakes. Although I have been staggered by how Mark Hoban etc have been allowed to stick their heads in the sand and aid this huge deception, this last manouvre is, I hope, completely unsupportable and will re focus attention where it needs to be.

  14. Terence P.O'Halloran 11th May 2012 at 10:31 am

    At risk of repeating myself; the whole FSA and litigious legal system relies upon PI Insurance to fund its nefarious activities. PI Insurance is treated as a social fund and David Kenmir imported and exploited the notion during the so called Pension Review by inviting claims and working against all previous commercial diktats regarding admittance of liability until proper investigation, on a case by case basis, had been carried out.

  15. Surely in this case there is a simple answer… The information provided by the marketing company in Arch cru and the fund prices quoted have now been shown to be ‘misleading’. How can the liability therefore lie with the IFAs. Make those responsible – the ACD, Depsositry banks etc.compensate the investors because they did not carry out their ‘duties’.
    If this continues it will become impossible to offer Independent advice, the public will be restricted to mainstream and bankassurers… Perhaps that’s the real end game.

  16. @Anon

    What a disaster that would be!. I am now in the age group when I need to start thinking about my pension plan and I have asked friends in a similar position who they have seen for advice. I was shocked to hear how some who had sought advice from a bank had been sold investment products that were entirely unsuitable, tying their money up for long periods when they didn’t have enough left for emergencies and also persuading one or two to move their pensions out of a good scheme to the banks own far inferior one. And how did they find out they didn’t have the best advice? By consulting an INDEPENDANT Financial Adviser. If you take a cross section of the public their individual financial requirements must differ widely, far more diverse than any individual bank could cater for. We need independent advisers to give us the whole picture. We are all going to have personal pensions soon – rich pickings for the square mile and the prospect of a cushty job for those in power who let them get away with it.

  17. Can anyone imagine John Lewis or M&S compensating customers with no complaint?
    If said customer did have a genuine complaint they could refer it back to the provider of the faulty article.

  18. @John @ 10.25am
    As an IFA it is reassuring to read your comment. Every one of the clients I have who are involved in Arch Cru, and it isn’t a great number, are equally stunned at the way the FSA have behaved in this manner. Has the power finally gone to their heads?! Hopefully this tactic will now hit the long awaited for buffers and the true culprits will find themselves in the limelight – and what a sorry bunch they will be.

    @ Anon at 1.29pm
    You said it. If the IFA could be shown to have behaved in such a culpable manner can you imagine the hell and damnation that would rain down? But, if you’re the ACD, fund manager, auditor and even regulator you get away with breaches like this, with horrendous knock on effects, and no sanctions at all.

  19. An insurer who doesn't write IFA's 11th May 2012 at 9:04 pm

    Make sure you notify your insurer if you feel that you could face a claim, whether you have received a claim or not. Be sure to meet the notice requirements of your policy.

  20. Pi insurance is no different to any other type. It’s mildly annoying when your car insurance goes up, but your geverally being penalised for the mistakes or misfortunes (or in some cases just fraud) of other policy holders, but we all sigh, pay the premium and move on with our lives.

    It’s no different and I’m surprised that others expect this model to be any different.

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