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FCA: PI must make sure ‘polluter pays’ for FSCS bills

Letting compensation costs fall onto the Financial Services Compensation Scheme rather than firms’ personal indemnity insurance goes against the principle that the “polluters pays” for their failure, the FCA has said.

In board minutes from its November meeting released today, the watchdog criticises PII providers for previously seeking to limit their liabilities when firms fail, and for preventing the FSCS from making claims on policies.

The FCA’s board minutes says: “The board recognises that, if the cost of compensation falls to the FSCS rather than the insurer, it is ultimately borne by those firms that remain in the industry. Spreading the risk across all surviving firms does not follow the ‘polluter pays’ principle.”

The minutes show just over three quarters (78 per cent) of claims submitted to PII insurers by personal investment firms in the last decade have been paid by a combination of the PII and the excess.

Incoming £69m FSCS levy blamed on DB transfers and Sipp claims

The FCA says it is questioning the degree to which PII is effective in the wake of its 2016 review into FSCS funding.

The review found that PII mostly works well for firms, but not for those that have engaged in large scale misselling scandals.

Effective funding of the FSCS funding continues to prove difficult, with the lifeboat fund announcing the introduction of a £69m levy for 2019 to cover its shortfalls this year.


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There are 3 comments at the moment, we would love to hear your opinion too.

  1. One of the FCA’s fundamental responsibilities is to identify, swiftly home in on and put a stop to the activities of firms engaged in mis-selling? On its own website the FCA claims to secure an appropriate degree of protection for consumers and to protect and enhance the integrity of the UK financial system. Yet plainly it does neither, hence the boatloads of uninsured liabilities being foisted onto the rest of us by way of the FSCS.

    It’s all very well for the FCA to insist that firms may no longer hold policies under which cover switches off as soon as the firm goes into liquidation and/or which excludes any claims from the FSCS, but of what value are such requirements if the policy doesn’t cover ALL areas of activity in the first place?

    The FCA’s position ought to be that no firm may undertake ANY activity in respect of which it doesn’t hold suitably robust PII. It should also demand copies of their policy documents from any firms engaged in anything potentially dangerous such as flogging UCIS and such like. Does Mr Bailey intend to reconsider his incredibly laissez faire statement that this is something about which the FCA isn’t particularly bothered?

  2. Surely PII is like any other Insurance.

    If I stop paying my Home Insurance, then the cover stops.

    Not clear why cover would be expected to continue forever.

    • If you’ve paid a full year’s premium, insurers shouldn’t be allowed to cancel cover until the end of the current policy year, regardless of whether the firm is actually still trading.

      There also remains the vexed issue of insurers refusing to accept claims in respect of advice given at the time they were collecting premiums for providing cover. Should a subsequent insurer not be prepared to provide cover in respect of past advice, you (the insured) will be left high and dry.

      The general modus operandi of PI insurers seems to be to find any excuse to reject claims.

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