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FSA slashes PI requirements for loan and general brokers

Mortgage and general insurance brokers have seen their professional indemnity insurance requirements dramatically reduced under proposals from the FSA as part of its plans for regulation of the two markets published this week.

Previous proposals would have required mortgage and insurance intermediaries to hold cover equivalent to three times annual income but the FSA&#39s latest policy statement says firms must have minimum limits of indemnity of just 10 per cent of annual income.

Capital adequacy requirements have also been halved for intermediaries not holding client money. They must now maintain 2.5 per cent of annual income, down from 5 per cent.

Rules for mortgage-related appointed representatives are essentially unchanged, with ARs allowed one principal for regulated mortgages and one for lifetime mortgages.

However, general and protection insurance ARs will have no limit on the number of principals they can have while the principals must establish “multiple principal agreements”, effectively paving the way for protection multi-ties.

FSA director of highstreet firms Sarah Wilson says: “Today marks a milestone for the insurance and mortgage industries. Firms now have all the information needed to take their major business decisions in advance of regulation.”

AMI director Chris Cummings says: “We are delighted that the FSA is taking a flexible approach to PI and capital adequacy. This is the right move and will make life easier for intermediaries under the new regime.”

Riach Independent Financial Advisers proprietor Bob Riach says: “Reducing capital adequacy requirements can only be good news for smaller firms who have suffered considerable problems with poor stockmarkets over the past few years.”

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