The Financial Conduct Authority has assured advisers it is working to tackle "shortfalls" in professional indemnity insurance for the advice market amid concerns the hardening landscape is pushing firms out of business.
Speaking at its annual public meeting today (September 24) Sheldon Mills, interim executive director of strategy and competition at the FCA, said the regulator was aware of adviser concerns surrounding a hardening insurance landscape and rising regulatory bills.
But he said these concerns had to be "counterbalanced" by the voice of consumers and the protection offered by the Financial Services Compensation Scheme, which is widely recognised as the main driver behind rising regulatory bills in the advice market.
Responding to concerns that the cost of professional indemnity premiums was beginning to "bring into question" the viability of advice businesses, Mr Mills said the FCA was "seeking to tackle shortfalls" in insurance for personal investment firms.
In June the FCA told FTAdviser it had undertaken "reactive work in 478 cases relating to professional indemnity insurance for financial advice firms" since the beginning of 2019.
This was despite claiming earlier this year cover remained available for advisers despite coronavirus concerns.
Rocketing insurance premiums and a lack of available cover, alongside an increasing FSCS levy, has driven many advisers to consider their long-term future in the industry.
The compensation levy paid by advisers was initially expected to jump 13 per cent year-on-year for 2020-21, primarily due to claims in relation to Sipp firms.
But the cost shouldered by advisers then increased further, by £16m to £229m, predominantly as a result of an extra £44m set aside by the lifeboat body to meet claims against LCF.
Mr Mills added: "Firms in the intermediary class have told us the increase is unfair since good advisory firms are being made to pay for the bad advice given by failed firms.
"We need to counterbalance this in terms of what is the voice of consumers here - ultimately when firms fail consumers are harmed.
"One of the considerations we have here is that perhaps we need to focus on bad actors in the system and finds way to reduce these."
In a Call for Input published earlier this month the FCA said it was looking to adjust the funding structure for the FSCS in a bid to ensure “polluting” firms pay more of the bill.
It admitted there were “no easy answers” for how to shake up the structure to ensure a fairer FSCS system, but primarily floated ideas on pinpointing the firms likely to cause the problems before they go into default and burden the lifeboat scheme
rachel.mortimer@ft.com
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