The Financial Conduct Authority (FCA) has hinted it may look into professional indemnity insurance for advisers with a view to possibly removing exclusions from policies.
Yesterday (27 February) steelworkers from Port Talbot, Scunthorpe and Teesside, alongside their representatives, took to Westminster to talk about their experience of receiving poor advice to transfer out of the British Steel Pension Scheme.
The FCA, Financial Services Compensation Scheme, Financial Ombudsman Service, The Pensions Regulator and Pensions Ombudsman were also all present at the roundtable.
Philippa Hann, partner at Clarke Willmott, who has been helping steelworkers bring claims against advisers, told the regulators she has looked at claims against 42 financial firms and only one had the right insurance in place to cover the claims.
Ms Hann took particular aim at exclusions found in advisers' policies, which allow insurers to carve out products or services they will not pay out on. She said such exclusions should be stopped.
Ms Hann also attacked capital adequacy rules. She said firms with a turnover of up to £1m have to have “absolutely woeful” capital adequacy of a mere £31,000.
She said: “Please will [the FCA] take some steps to consult on closing that gap, the good advisers do not want there to be this and the FSCS does not need there to be this and I see no reason why there should be any [PI] exclusions.”
Debbie Gupta, director of life insurance and financial advice supervision at the FCA, said: “I agree with you and I would like to speak to you more about this. PI is very much in our remit and is in our sights.”
The FCA’s rules state the policy cannot exclude "any type of business or activity that is carried out by a firm in the past or that will be carried out by the firm during the time in which the policy is in force" but this is ineffective if the firm "holds additional capital resources".
Ms Hann argued this created an environment that allowed insurers to put in exclusions, and if the adviser did not have the extra capital the claim would end up at the FSCS, at the expense of the rest of the industry.
Many advisers have seen their regulatory fees increase exponentially as a result of increasing claims.
The regulator was also questioned by a steelworker on why it allows insurance companies to sell PI cover to IFAs that is not covering their whole host of services.
Ms Gupta said the regulator did take action on financial advisers that are operating without insurance.
She added: “Regarding insurance companies we are doing further work on the insurance and how the exclusions are arising and this continues to be an area of significant focus for us because yes, you are absolutely right in that this is one of the ways that we can get improved outcomes in this sector.”