The April 17 issue of Money Marketing included an article entitled, Kenmir claims PI crisis will root out “bad IFAs”.
Immediately after publication, the FSA received calls from readers who were concerned that we had changed our stance in relation to firms who are having problems obtaining PI cover. This is not the case.
I have said publicly on many occasions that the FSA is willing to work with IFAs who want to comply with our regulations but we reserve the right to take formal action against firms, if appropriate. This is still our stance.
There is no doubt that some IFAs are unable to get PI cover because they are regarded as a bad risk by PI insurers. However, I agree with Paul Smee's observation that not all IFAs are being properly underwritten based on the risk they pose.
At our recent workshops, IFAs indicated that they would be willing to support an “industry mutual” – but only if firms were properly risk-assessed by the mutual before they were allowed cover. This suggests that IFAs themselves know that there are “good” and “bad” firms in the market.
The FSA's role as a regulator includes, as Paul Smee notes, getting rid of bad firms or individuals, because that will help us meet our consumer protection and market confidence objectives.
Many IFAs ask me how we decide which IFAs we should take action against in relation to PI. First, we identify the IFAs who have not had cover for the longest period.
Then we give priority to dealing with IFAs who have got other regulatory issues, ahead of IFAs whose only regulatory problem is the absence of PII.
By the end of March, we had referred 16 firms to the enforcement division because they did not have PI cover. We had initiated formal proceedings against nine of these, the other seven cases were either resolved because the IFA got cover or chose to leave the industry, or are still open.
Over half of the IFAs we initiated proceedings against had other problems such as incomplete pension reviews, FSAVC reviews, unpaid fees to the FSA, other financial problems, or unpaid FOS awards.
If the FSA were to allow IFAs who fail to comply with our rules to continue in operation forever, they would have an unfair competitive advantage over the overwhelming majority of IFAs who want to provide a good service to their customers and comply with our requirements.
Director, investment firms division, FSA, London