Advisory firms were given very little notice about massive changes to the level of compensation they can be expected to pay, and now have just one week to tell the UK financial watchdog if their professional indemnity insurance (PII) does not meet the updated requirements.
In an email sent on 29 March, seen by International Adviser, the Financial Conduct Authority (FCA) gave just five working days for firms to notify it if their existing PII policy does not provide compliant cover.
On 8 March, it was confirmed that the Financial Ombudsman Service (FOS) would be able to force firms to pay out higher compensation to customers and businesses from 1 April 2019.
The level of compensation has more than doubled to £350,000 ($455,821, €406,244) from the current £150,000.
In the email, the FCA cites the Interim Prudential sourcebook for Investment Businesses (IPRU-INV), which requires “personal investment firms take out and maintain, at all times, PII that is at least equal to the requirements in IPRU-INV chapter 13”.
“This includes ensuring the policy providers cover for ombudsman service awards made against the firm.”
What must firms do?
The email recommends firms that are subject to this requirement, and concerned that their existing PII policies might not be compliant, take the following steps:
- Check your PII policy and ensure that it provides cover for the new FOS award limits. If it does, there are no further steps you need to take.
- If you are not sure, speak to your insurer or broker (as appropriate) in the first instance.
- If you PII policy does not provide compliant cover, please complete [an] online survey within five working days to notify [the FCA] and let us know how you intend to obtain this cover. Alternatively, you can tell us via the FCA firm contact centre.
The FCA will review companies’ plans, alongside other information it holds on firms, and get in contact if it has any concerns or further questions.
“In the meantime, you should urgently progress your plans to obtain compliant cover and let us know when you have done this via your dedicated supervisor,” the watchdog said.
“We recognise that some firms may be in a position where they need to obtain different PII following the increase. We may be prepared to allow firms who follow the steps set out above time to make these arrangements. We would expect insurers to deal fairly with firms in this position.”
