The Chartered Institute for Securities and Investment says increasing the Financial Ombudsman Service compensation limit to £350,000 may have unintended consequences for small and medium-sized firms.
It has asked the FCA for urgent clarification for its financial planning and wealth manager members who may be affected by the increase.
But there has been a backlash from advisers who say they cannot renegotiate their insurance contracts in such a short time.
In a letter to the FCA chief executive Andrew Bailey, CISI chief executive Simon Culhane acknowledged the importance of ensuring adequate consumer protection.
He says professional indemnity insurers were already facing a hardening market, with the FOS increase now only serving to harden the market further.
He says: “This is by potentially reducing the number of insurance providers but also by increasing costs significantly to advisory firms. We are receiving reports that premiums are more than doubling.”
The misconduct of a few is effecting the costs for many CISI member firms who conducting their business with integrity, he adds.
He adds: “Our members are concerned, many of whom have satisfied the institute’s criteria for their firms to be accredited, that it is the honest and trustworthy organisations who are forced to shoulder further costs in reaction to misconduct by others.”
The CISI letter also notes “the short notice given to advisory firms and the lack of wider consultation about the potential impact of this rise means that there may be serious unintended consequences as a result”.
The watchdog gave firms five days to report to it about any professional indemnity insurance polices that were not compliant with the new FOS award limit.
Insurer Liberty Speciality Markets has confirmed it will meet the higher FOS limit, but not for defined benefit transfers.
Tenet Group has confirmed its insurer Paragon’s cover will be the same for FOS or legal cases.
It also says there is comprehensive cover for all sectors and no exclusions.