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European PI demands could be blocked

The crippling professional indemnity insurance requirements coming in from Europe could be stopped in their tracks if a European Commission review decides they are inappropriate.

As revealed by Money Marketing in May, the Commission is reviewing the insurance mediation directive and the market in financial instruments directive and will report on its decision in the first half of 2005.

Money Marketing understands it is considering “the continued appropriateness of PI requirements for intermediaries” and sources say it may well be decided that the requirements to have PI will be removed altogether.

Further relief for IFAs can be found in a newly relaxed attitude from the FSA, whose chief executive John Tiner revealed last week that, consistent with its EU obligations, the FSA intends to exercise supervisory discretion with regard to PI requirements when a firm holds sufficient financial resources overall.

Another development is a previously unremarked clause in Mifid which could exempt all IFAs from the directive. The clause enables advisers and arrangers who do not hold client money to be excluded from Mifid but they would be unable to do business in Europe.

Aifa director general Paul Smee is keen to utilise the clause to obtain maximum flexibility for IFAs, enabling those who are keen to practise in Europe to opt into Mifid and all its requirements while those who want to confine their business to the UK could opt out.

FSA spokesman Rob McIvor says: “Our overriding objective is not to put firms in a position where they have to close down or merge to meet a requirement which might never have an impact on their business.”

Smee says: “We have got to make sure that the breathing space before the review is not wasted.”

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