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Regulator is taking axe to small IFAs

The FSA is slaughtering small IFAs with its professional indemnity axe and the rest of the industry just sits back.

PI insurers are refusing new business, some have even halted renewal business and the remainder have withdrawn but the FSA still demands that IFAs obtain the unobtainable or stop trading immediately. If ever there was an infringement of human rights this is it.

Does anyone but the IFA care? The FSA&#39s own figures, as at January 27, show that an average of 24 per cent of IFAs seeking PI renewal during September to November of 2002 have no PI cover. This average figure disguises the real problem as the FSA&#39s own analysis of this makes clear. Each month&#39s figure becomes worse, with September 12 per cent, October 15 per cent and November 34 per cent.

The FSA seems to be in denial when it offers IFAs its own conclusion: “The position in the market may not be as bad as you imply.” PI brokers and PI insurers alike state that the true cause of all of this PI bloodbath is the result of 13 years of successive regulatory failures and the unjust application of retrospective rules and reviews on each occasion to ensure that policyholders receive compensation payments which would never have been allowed in a proper court of law.

The PI market&#39s confidence in dealing with financial services will not return until it can be certain that a proper degree of fairness and justice will be applied by the FSA in future. In particular, PI insurers seem to believe there is the potential for endowments to become one more unfair review.

All of this has resulted in the PI insurers&#39 thumbs-down to financial services. Small IFAs who are unable to get PI cover are not to blame for this sorry mess but, as usual, the most disorganised and weakest elements are being bludgeoned into oblivion by regulatory madness.

If the FSA has any real desire for the public to receive the proper protection of a healthy competitive PI insurance market, then it must listen and acknowledge the serious damage which has been done and alter the regulations to define misselling, as Sandler has demand-ed, and also make it clear that any future claims will only be entertained where there were breaches of rules which existed at the time of a sale.

These changes would encourage PI insurers to have confidence that claims would only be allowed in conditions, which are just and fair and similar to those permissible in a proper court of law and still protect individuals who have been genuinely missold.

There is a conspicuous absence of support for the plight of small IFAs by insurers, investment houses, and bodies such as Aifa, despite the fact that each of these depends upon IFAs to some degree or other, and this should be addressed in the form of a campaign by a large body of individuals.

Each IFA should first post or email a complaint to the FSA demanding suspension of the PI rule on the basis that it is not only an absurd demand in present circumstances but also against the European Convention on Human Rights to demand that an IFA obtains cover when the regulator knows that such cover cannot be obtained and, second, send a copy of this to the managing directors of insurers and other companies, the press and MPs, requesting assistance in achieving regulatory fair play.

Alan Tonks

Alan Tonks &Associates IFA,

Ascot, Berkshire


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