The new prudential rules for personal investment firms require that where a firm has exclusions on its professional indemnity insurance it will be forced to hold additional capital above the minimum £20,000 or three months’ expenditure.
The additional capital will be calculated based on firm’s income, rather than how many exclusions they have on their PII policy.
PYV chief executive Neil Pointon says some underwriters refuse to provide cover for some lines of business, such as pension transfers or structured products. Some also exclude thematic reviews instigated by the FSA.
He says: “Over time we have seen more of these exclusions appear. The action the FSA is taking by highlighting exclusions may deter underwriters from sneaking them into policies. It may also show IFAs that they need to shop around to make sure they have sufficient cover.
“I would recommend all IFAs try to get a PII policy without exclusions, rather than holding additional capital.”
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 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.
FSA head of accounting and auditing of the prudential policy division Richard Thorpe says: “We would have to look at specific policies when the issue arises.”
Aifa director Robert Sinclair says: “Hopefully the FSA will be pragmatic in this area. We would be very interested to hear what the regulator’s thinking is.”