Some current PI insurance policies have excluded the FSCS as a claimant, or exclude claims where the firm provider or fund has become insolvent.
Following feedback from a July consultation paper however, the regulator confirms changes to its handbook will ensure this is no longer allowed.
The changes are intended to ensure more consumer claims are paid directly by insurance, ultimately keeping the FSCS bill on the industry low, the regulator says.
The FCA says: “After consideration of the responses, we have decided to proceed with the proposals that we consulted on. The new rules are intended to ensure that more consumer claims are paid by insurers, which will help to reduce the cost of the FSCS to other.”
The new measure was confirmed to come into force from 1 June 2019.
The FCA says it will work closely with the FSCS on monitoring the effectiveness and also on compliance.
It says:” We may review whether a requirement for insurers is appropriate at a later date if the FSCS provides us with evidence that it has encountered difficulties in pursuing recoveries as a result of prohibited exclusions.
“Individuals in personal investment firm senior management are responsible for ensuring that PII contracts meet the relevant regulatory requirements and so action can be taken against individuals for any breaches even if the firm itself has failed.”
The amount that firms pay toward the lifeboat fund continues to be a contentious topic, with providers ordered to pay 25 per cent of advisers’ bills in a May ruling this year.
The FCA first consulted on whether a reduction to the bill was possible if claims were paid through insurers straight from PII more than two years ago.
Also among changes in FSCS funding this year is the change to compensation amounts for investment and mortgage advice.
The limit will increase £35,000 to £85,000.