FCA criticised for leaving PI out of advice review

FCA criticised for leaving PI out of advice review

The regulator should have considered the current professional indemnity landscape in its review of the advice market, the Personal Finance Society has said.    

The debate surrounding PI insurance reached fever pitch this year, with advisers facing premium increases and exclusions as insurers shunned a shrinking defined benefit market. 

Keith Richards, chief executive of the PFS, said the issue should have been included in the Financial Conduct Authority's review of the advice sector - launched earlier this year. 

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The FCA is set to publish its findings of its re-evaluation of the Retail Distribution Review and the Financial Advice Market Review in autumn 2020, a process it initiated this year.

At that time the regulator admitted some of its rules might be harming the market. 

Mr Richards said: "The FCA is continuing with its review of the Financial Advice Market Review, but it has not factored in the availability of professional indemnity insurance and the cost of Financial Services Compensation Scheme levies into this strand of work, preferring to deal with these issues separately.

"We don’t think this is the right approach. The Financial Advice Market Review was an attempt to measure and deal with the advice gap in a holistic way, and we have to make sure all policymakers continue to meet the challenge in this spirit."

In an update on its website in July the FCA said it would "not be an efficient use" of its resources to focus on the issues of PI insurance and FSCS funding in its advice market reviews as it was already completing, or had recently completed, projects on these issues. 

Advisers have seen a marked increase in their annual regulatory bills this year, which has largely been driven by growing FSCS costs. 

On top of this the FSCS warned advisers this month they will have to pay their share of a £46m interim levy in light of rising pension advice claims. 

Mr Richards said tackling the issue of how to pay for liabilities in a "sensible and sustainable way" was at the top of the professional body's to-do list next year. 

He said: "Our task is to convince the new government that there is a need to approach this issue strategically, through primary legislation if necessary.

"At the PFS, we have developed a proposal for payment of compensation and professional indemnity in the form of a levy on all funds under management – a levy that would add up to a tiny proportion of these funds of only three basis points.

"We will be working with policymakers at every level to turn these ideas into reality in 2020."

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