Research from SimplyBiz suggests the majority of firms that recommended Arch cru will not be covered by professional indemnity insurance.
The FSA has met with fierce industry resistance since it proposed its £110m Arch cru consumer redress scheme in April. If implemented, it will require IFAs who recommended Arch cru to review their sales and pay redress where appropriate. The consultation closed last week.
The regulator estimates about 30 per cent of the firms that sold Arch cru and are still trading could breach their capital requirements as a result of the redress scheme with £33m falling on the Financial Services Compensation Scheme.
SimplyBiz warns the FSCS bill is likely to be much higher with the majority of claims not covered by PI.
The support services company has spoken to PI insurers to establish the redress position of 63 SimplyBiz firms and at least 555 Arch cru sales. Of those 63, 10 firms are no longer authorised, representing 84 Arch cru cases.
Of the 53 firms remaining, 45 firms representing 362 cases have either not notified their PI insurer about potential Arch cru claims, have made a partial notification or have had their notification declined.
SimplyBiz chairman Ken Davy says: “Over 77 per cent of Arch cru cases written by currently authorised IFAs are not covered by PI. It is therefore highly likely the majority of redress will fall on the FSCS. This is manifestly unfair as it will be firms who had no involvement with Arch cru who will be funding the redress.”
The FSA has received more than 100 responses to the redress scheme consultation.
Yellowtail Financial Planning managing director Dennis Hall says: “The FSA had an outcome it wanted to get to with the redress scheme and is doing what it can to make it fit. It is hugely unfair. Firms are desperately trying to stay in business and, quite frankly, I am not sure firms can afford this.”