FSA proposed sliding scale minimum capital requirements 'to push up costs' - PI for IFAs

5/12/2008

New proposals from the Financial Services Authority (FSA) will require a number of firms to increase capital resources in order to provide them with cover for business lines which are excluded under their Professional Indemnity (PI) insurance policy, it has been reported.

Following the FSA's review of prudential rules for personal investment firms, it is claimed that currently two per cent of businesses will be in need of extra capital to help them with covering those operations that are not be protected from PI due to their individual circumstances, Money Marketing reports.

Neil Pointon, Chief Executive of specialist PI broker PYV advised that the minimum additional capital required would stand at £5,000 followed by a sliding scale depending on the size of the IFA business and that these new rules are proposed to be implemented after a period of consultation and before the end of December 2012.

However, the FSA goes on to point out that during a period when PI is harder to obtain, managing such additional capital requirements will result in higher costs for more firms. It was reported that total additional costs to advisers where five per cent of the IFA community have additional PI exclusions will stand at about £4 million, with this rising to £15.9 million where 20 per cent are affected.

Speaking in June, Jonathan Davies, partner at Reynolds Porter Chamberlain, told FTAdviser that brokers and mortgage advisers are set to experience an increase in PI insurance costs in light of mis-selling claims.

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PYV are one of the UK's leading providers of professional indemnity insurance. This news article has been produced by Adfero in collaboration with PYV and its unauthorised use is not permitted.

(c) 2008 Adfero Ltd.

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