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Pifs that can’t get full PI must hold more cash

Personal investment firms that cannot get comprehensive professional indemnity insurance will have to hold significantly higher capital under the regulator’s new prudential rules.

The rules require that,where a firm has exclusions on lines of business or on FSA-instigated thematic reviews, it will need to hold additional capital above the new £20,000 minimum or three months’ expenditure. The additional capital will be based on a firm’s income rather than how many exclusions the company has on its PI policy.

PYV chief executive Neil Pointon says: “We have seen more of these exclusions. The action the FSA is taking by highlighting exclusions may deter underwriters from sneaking them into policies. It may show IFAs they need to shop around to make sure they have sufficient cover. I would recommend all IFAs try to get a PI policy without exclusions rather than holding additional capital to meet the FSA’s requirements.”

Pointon says underwriters are likely to back away from insuring structured product business in light of the recent FSA review.

He says: “The FSA’s action is yet to take effect for IFAs currently renewing their policies but underwriters are going to be looking at structured products very closely from now on.”

The FSA says it cannot yet clarify whether the rules will apply retrospectively. Head of accounting and auditing of the prudential policy division Richard Thorpe says the regulator would have to consider “specific policies when the issue arises”.

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