The Financial Conduct Authority has clarified its position on professional indemnity insurance in the advice market.
Speaking at the Personal Finance Society's annual conference in Birmingham today (November 28) Debbie Gupta, director of life insurance and financial advice at the FCA, reiterated the regulator's position on what has arguably been one of the most contentious issues in the advice market this year.
In April the regulator increased the compensation limit of the Financial Ombudsman Service from £150,000 to £350,000, a move that has been widely credited for the hardening professional indemnity market which followed in its wake.
Since the increase advisers have reported rising premiums and the introduction of policy exclusions, particularly in relation to advice in the defined benefit transfer market.
The PFS itself has been vocal in its warnings that the current landscape was leaving advice firms "shockingly exposed" to financial failure, as predictions of 500 per cent increases in premiums began to materialise earlier this year.
Speaking to conference delegates today Ms Gupta said she appreciated the matter of PI insurance was one which was "very, very live" in the sector.
She said: "I want to reiterate, for the avoidance of any doubt, the FCA's position. Professional indemnity insurance is in place to protect both firms and consumers and they must serve the purpose for which they are needed.
"We expect firms currently offering defined benefit transfer advice to have appropriate professional indemnity insurance in place, in line with our rules."
If advisers do not have appropriate cover they should not be advising on defined benefit transfers now or in the future, Ms Gupta warned.
She added: "That includes stopping any pipeline business.
"Appropriate cover should not exclude relevant lines of business, such as defined benefit transfers. It should not include sub-limits, meaning that the cover falls below the minimum requirements and for example where financial advisers are IDD firms the minimum requirement is €1.85m (£1.57m).
"And it should not include excesses at such a level that would essentially render the cover materially ineffective.
"So simply put, a firm must at all times be able to meet its liabilities as they fall due."
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