Directives from Brussels are causing professional indemnity insurance problems for IFAs and Labour MEP Peter Skinner says lobbying should be centred on this issue. IFA firms carrying out both insurance and investment business will be hit with PI requirements stemming from the insurance mediation directive in January and the investment services directive in April 2006. This means firms will need to have £1.5m of PI cover in place if they are to continue trading.
Skinner says: “If you were to ask me what our campaign would be for the financial services sector, it would be on this area.”
He says some of the most crucial legislation coming out of Brussels relates to financial services and urges the sector to be more proactive in lobbying Europe on the issues affecting the industry.
Skinner says it is critical that investors as well as people who work in financial services get involved before the European elections on June 10.
“Britain has always been an innovator in terms of financial services and Europe remains a very exciting area for companies that want to contribute to widening markets,” he says.
Skinner thinks the European Union needs to place a greater emphasis on opening local markets to foreign investment. He believes there are three types of barriers to the growth of these markets – regulation, administration and cultural.
The MEP for the South-east of England feels that retail markets for many financial services products will remain local for some time to come, and concludes it would not be cost-effective to continue boosting the cross-border market in retail products.
Skinner plays down industry concerns that initiatives such as the financial services action plan and work on international accountancy standards, could take years to “bed down”.
He is surprised that trade bodies such as the ABI have reacted negatively to the time it is taking to implement the action plan, saying: “This legislation really bites in 2006/07. If it took years after this point then, yes, I would be disappointed if there had not been any real advances that the industry could grab hold of.”
Skinner agrees there is considerable work to be done to stop the UK being hit by regulation that is backed by countries whose financial services markets are less developed.
The investment services directive posed a threat to execution-only business before it was amended and, in light of this, Skinner says: “Some markets are still privileged monopolies and we need to knock that down. Britain fought back from a position where we were a lone minority – us against 14 member states.
“Our win on the ISD not only protects our own industry but forces back those monopoly ideas. We can go out there and push those markets to be more open-minded.”
He describes the Sandler range and execution only as a new way of financial thinking that other member states will adopt in the future. He says the negative responses came from countries where execution-only does not play a part the financial services markets.
Skinner says: “People are afraid that execution-only will lead to the kind of problems that they imagine occur in the US, where there is a lack of protection for consumers.”
He reiterates that while consumer interest has remained at the forefront, there has been a degree of “over-protectionism”.
However, he urges IFAs not to panic and says he thinks it is destructive to focus on the potential problems of legislation that is not designed to come into force for four or five years.
He says: “On ISD and other issues we have had a great deal of success in negotiating. An initiative has come from Parliament to carry out an economic survey of the impact of European legislation and this will include an examination of the increasing cost of PI.
“The commission will make an assessment of income, which will be looked at early on.”