Financial Conduct Authority  

FCA tackles professional indemnity fears

FCA tackles professional indemnity fears

The regulator has responded to concerns that raising the ombudsman's compensation limit could make it more difficult for smaller businesses to get professional indemnity insurance.

Adviser trade body Pimfa had warned the plans, which will see the compensation level the Financial Ombudsman Service can award raised from £150,000 to £350,000 on 1 June 2019, were flawed because they would render it difficult for advisers to get PI insurance.

It had also criticised the Financial Conduct Authority for not engaging with the financial sector about the proposed changes before issuing an official consultation and expressed dismay that seemingly no assessment of the impact on the PI market had been made.

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But the regulator told FTAdviser it was aware of the issues and pledged to carry out detailed analysis before finalising any rules.

A spokesperson for the FCA said: "We are very aware of the need to understand the impact of our proposals on PII premiums before we finalise our policy.

"Our consultation on this issue is still open and as normal we have sought input from everyone with an interest - both insurers and insureds.

"We will be carrying out further analysis of the impact on PII in the next stage of our policy development before coming to conclusions."

Pimfa had acknowledged the FCA was seeking feedback on proposals laid out in the paper, with particular emphasis on how they would affect small to medium enterprises.

However it questioned whether the FCA was armed with enough evidence to arrive at the conclusion that the proposals were robust.

Liz Field, CEO of Pimfa, said: "If firms face a significant increase in premiums and the level of excess in order to obtain PI, and underwriters change the risks they are willing and able to insure, then it could have a significant impact on competitiveness, including raising the barriers to entry for new firms and further widening the advice gap.

"It could also change firms’ service offerings, depending on their ability to obtain PII cover at an economic cost."

Pimfa said it was disappointed that there had been no engagement with stakeholders prior to the publication of the consultation paper.

Ms Field said: "Our profession has an essential role to play in helping to build a culture of savings and investments, and we are deeply concerned that this move could severely impact firms' ability to be able to provide this vital service to clients."