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FCA confirms PI policies cannot exclude FSCS

Advisers’ professional indemnity policies will no longer exclude Financial Services Compensation Scheme claims, the FCA has confirmed today.

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.”

FSCS still processing 2,000 Beaufort Securities cases

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.


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There are 11 comments at the moment, we would love to hear your opinion too.

  1. I wonder what the unintended consequence of this will be? No PI insurers as they withdraw from the market or a trebling of premiums?

  2. Cant see how this will work when cover is on a “claims made basis” who will pay to keep the cover going if the firm is not in FSCS before cover expires at renewal then theres no cover. Or have I missed something?

    • One or the other ~ or more and more firms not bothering to switch insurers and hoping the FCA doesn’t demand a copy of their policy doc confirming full compliance.

      Another measure that could massively reduce the tanker loads of uninsured liabilities being taken on by the FSCS would be for the FCA to do its job properly and prevent so many train wrecks happening in the first place. Of that, we read nothing.

  3. Michael Tomlinson 19th November 2018 at 12:25 pm

    Wasn’t £35,000 years ago?

  4. Stratospheric if not completely unaffordable premiums is what will happen.

  5. (Increase by £35,000}

  6. Why would anyone want to be a PI insurer?

    The Financial Ombudsman service announced, on the 16th October, it was proposing that on 1 April 2019, yes, now just 4 months away, “the ombudsman service’s £150,000 award limit should increase by 133% to:

    £350,000 for complaints about acts or omissions by firms on or after 1 April 2019 £160,000 for complaints about acts or omissions by firms before 1 April 2019, and which are referred to the ombudsman service after that date

    They also propose that, from 1 April 2020 onwards, both award limits should be automatically adjusted on 1 April to ensure they keep pace with inflation, as measured by the Consumer Prices Index (CPI).

    For any complaints referred to the ombudsman service before 1 April 2019 the limit will remain at £150,000”.

    They said that “proposed changes to the ombudsman service’s award limit will ensure more complainants receive fair compensation when the ombudsman service upholds their complaint against a firm”.

    We believe that this will see the end of smaller IFA firms due to impossible capital adequacy requirements caused by higher excesses to deal with £350k claims. It will be the end of anyone looking to start a new firm.

    It will mean that PI premiums will get so high that only the largest firms could afford it.

    And, you guessed it, more firms falling into FSCS default with fewer firms being left to pay the increasing calls for cash.

    Truly, this is the industry, sorry profession, that will destroy itself.

    • Or be destroyed by maniacal over-regulation on the part of armchair theorists who have no idea of the realities of running a small IFA business. And what of the FAMR? A complete and utter waste of time and money.

  7. Perhaps the wholesale withdrawal of PI underwriting capacity will result in the regulator providing ‘insurer of last resort’ cover through our regulatory fees, or even direct ‘membership’ of the FSCS.

    That works in other industries where private market cover is impractical.

    One lives and dreams.

    • I suspect the issue is more likely to be demand-side unaffordability rather than supply-side withdrawal of capacity, and “of last resort” arrangements won’t solve that.

  8. Given that not even the FCA can dictate policy terms to insurers, a more accurate title would be: FCA rules that financial advice firms will be banned from holding PII policies that refuse to accept claims from the FSCS.

    As a result, the market will contract even further and firms will find themselves paying more for policies with more exclusions and even bigger excesses.

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