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FCA: Mandatory PI wording ‘would prevent competition’

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The regulator is unlikely to introduce mandatory wording for advisers’ professional indemnity insurance policies, according to FCA senior technical manager Rory Percival.

Percival told delegates at the Institute of Financial Planning’s annual conference today that to do so would be prohibitive to competition.

PI broker O3 Insurance Solutions managing director Jamie Newell said the lack of mandatory wording – which he argues is in place for all other major professions – allows insurers to apply exclusions which leaves gaps in cover.

Newell told the audience: “All the other professions have a mandatory policy, and they also mandate run off cover. Financial Services Compensation Scheme levies are going up by as much as 100 per cent, but if we had a mandatory wording in place it would get the bad eggs out of the industry.

“It would be a small pain for the first couple of years as PI premiums would increase, but the levies would then come down because the good firms would not be paying for the bad.”

But Percival said the introduction of mandatory wording is “unlikely for a number of reasons”.

He said: “One is that we are not a heavily prescriptive regulator, we are more principles based. We don’t have to prescribe the contracts for investment funds, for advisers’ charging disclosure or for suitability reports.

“The second reason is it is effectively counter intuitive from a competition point of view. One of our statutory objectives is to promote competition in the interests of consumers, so prescribing contracts or key elements to contracts would be prohibitive to competition.”

But Percival added that the Treasury’s Financial Advice Market Review, which is examining access to advice, is likely to look at advice firms’ liabilities.

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Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. Since when did the FCA ever bother to check whether intermediaries flogging high risk junk had adequate PII coverage to do so? Never, because it never examines in detail any of the RMA Returns, thereby proving them to be a pointless imposition for their own sake. Pragmatic my arse. If it had, it could have stopped intermediaries selling high risk junk for which they had no PII cover. But it didn’t. It FAILED.

    And that’s why our FSCS levies are now skyrocketing (not to mention banks having to pay out billions of pounds in compensation for having been allowed for years to mis-sell MPPI). Regulatory negligence. Nothing to do with an absence of standard wordings in PII policies.

    And anyway, if PI insurers (for our sector) were told what wordings they must include in their policies, even more of them would withdraw from the market and those that remained would hike their rates even further. Gordon Bennet, isn’t it obvious?

  2. Oh Rory, Rory, Rory !!
    He said: “One is that we are not a heavily prescriptive regulator, we are more principles based.

    Not heavily prescriptive ! Eh ? do you really know what you are talking about ? remind me……. how big is the FCA rule book how many “COB,s” are there ?

    Sounds like the FCA is an all bases covered, regulator……. Prescriptive or principle, makes no real difference

    You (the FCA) are so consumed by the “nirvana” that is, you only get positive consumer outcomes, is that whilst one section of society is liberated; you financially enslave and sanction another !

    But then you (the FCA) will always argue, they are only applying the rules ………… being prescriptive ! and that is the principle you live by !

    Please disengage your head from your backside !

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