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.