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FSA looks at scrapping PI

The FSA is considering scrapping mandatory professional indemnity insurance for IFAs as one option in its Integrated Prudential Sourcebook consultation paper.

In the same paper, published this week, it unveils plans which could force intermediaries holding client money and fund managers to increase their reserves and regulatory responsibilities to the levels expected of international banks. Autif warns that the proposals would hit fund managers very hard.

The FSA says that while offering consumer protection, PI may act as a barrier to entry into the IFA market. The consultation paper says: “We recognise that the arguments for or against a mandatory PII requirement are not clear cut.”

Aifa director general Paul Smee says: “I am glad the FSA is having a proper review of the implication of PI. It is important to review the rationale for the requirement, not just its detail.”

ProAct Legal principal Gareth Fatchett believes the move is highly unusual and, without PI, IFAs will be totally liable personally.

An FSA spokesman says: “IFAs, who by and large do not hold client money, would find things simplified. All that we would require from IFAs is a bit of a buffer against disorderly exit.”

On the threat to fund firms, Autif director of regulation and taxation Julie Patterson says: “This is a big and unacceptable hit on our industry. This is going to be a lot of work. Our industry is suffering four hits – from the FSA, Basel 2, the EU capital adequacy directive and the Ucits negotiations. It is all a complete muddle.”

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