Keith Richards responds to FCA announcement
02 April 2019
02 April 2019
Personal Finance Society
You will no doubt be aware of the recent announcement confirming that the Financial Conduct Authority (FCA) implemented a rise in the Financial Ombudsman Service's compensation limit from £150,000 to £350,000 on 1 April.
The Personal Finance Society has raised its concerns both independently and as part of the FCA consultation, highlighting the impact these changes impose on the professional indemnity insurance (PII) landscape for personal finance professionals, and its ongoing availability in what was already a hardening market.
I wrote to the Chief Executive Officer of the FCA as recently as 27 March to express my concern, following feedback from members, regarding the evident impact of this change and requested that clarification be provided to the sector regarding the potential risk of breaches.
As a professional body, whilst we remain in favour of appropriate consumer protection, we nevertheless remain deeply alarmed by the hitherto lack of wider consultation in relation to the unintended consequences of this action.
I have also requested urgent clarification of the actions being undertaken to rectify any impact surrounding the lack of preparedness amongst PI Insurers in terms of amending existing cover, or affordable quotes at renewal, as they themselves come to terms with the implications of these regulatory changes.
The FCA subsequently wrote to all firms last Friday March 29, highlighting the need for compliant PI cover and the requirement to complete an online survey within five working days in order to tell the regulator how they intend to obtain sufficient cover if not already in place. The regulator has confirmed that it will review plans alongside other information it holds on the company, stating it would be in contact with any concerns or questions.
They have also confirmed that they recognise that some firms may be in a position where they need to obtain different PI insurance following the increase and may be prepared to allow firms, who follow the steps set out in their e-mail, to find additional time to make these arrangements. The FCA has stated that it expects insurers to "deal fairly" with companies searching for compliant PI cover.
However, members have reported that some Insurers have confirmed that cover currently remains at £150,000 for ombudsman decisions, whilst they were awaiting further information from the FCA before increasing the limit.
As proposed in my letter to the Chancellor of the Exchequer in January this year, we believe that the time has come to look again at a more broad-based solution for both PII and the FSCS levy, combining fair and cost-effective levies in tandem with a public financial education programme.
Our overriding concern remains that consumers will be far better protected by active solvent firms, and something needs to be done to prevent both advisers and clients from finding themselves at significant risk of financial failure and the confidence and trust of the public becoming irreparably affected.
We are actively progressing both urgent issues with FCA and HMT.