Alan Pickering's proposals for pension legislation by principle rather than by prescription could leave IFAs open to charges of misselling, warns Scottish Equitable pensions development director Stewart Ritchie.
In the latest edition of the Ritchie Papers, he warns that the less prescriptive approach could lead to different interpretations of the rules, leaving IFAs open to claims of misselling by the FSA.
Ritchie warns that increased discretion for IFAs could mean professional indemnity insurers raising premiums or increasing excess limits as the profession takes on more risk.
He argues that a principle-based regime would need to be mirrored by a change in the ethos of the regulator and a move away from punishment to co-operation.
Ritchie says: “IFAs are wor-king against a background of pension misselling and are likely to be understandably cautious about a greater freedom in interpreting legislation which they may view as a potential professional indemnity claim. A key issue will therefore be the degree to which professional indemnity insurers support the change to the nature of the risk.
“Pickering's proposals for principle-based regulation lead to proposals for a new kind of regulator, which would be as much about helping and guidance as about seeking out and responding to wrongdoing.”
Bates Investment Services head of pensions James Jones-Tinsley says: “With the FSA going from one review to the next, increasing the scope for interpretation means that IFAs will become an easy target for the FSA.
“What will this do to professional indemnity insurance? It may sound at odds with what IFAs usually think but prescription is necessary in pension legislation to avoid fines in the future.”