The Personal Finance Society (PFS) has called for a joint
solution to the flaws in the Financial Services Compensation Scheme
(FSCS) and professional indemnity insurance (PII) market as part of
its submission to an FCA consultation.
In its response to the regulator's Reviewing the funding of
the Financial Services Compensation Scheme (FSCS)
consultation, the professional body welcomes the FCA's proposed
review of the PII market later this year, but suggests it should be
more closely integrated with the current review into FSCS
The PFS is concerned that proposals to reform the FSCS, due to
be published by the FCA in Autumn 2017, will fail to take into
account the outcomes of the later PII review.
PFS chief executive Keith Richards said the disconnected
approach was likely to lead to a sub-optimal outcome: "Given the
link between PII and the FSCS, and the dynamics of how insurance
works in relation to the legacy liability of regulated advice, we
need to find an integrated and sustainable solution that responds
to the flaws in both markets.
"Any success the FSCS review achieves in terms of reducing the
unpredictability of levies, and better aligning costs to the risk
profiles of adviser and related firms, could be undermined if it
results in less competition and higher premiums in the PII
"Higher risk rated advice firms may even find it impossible to
secure PII as a consequence, potentially forcing them into
administration and thereby adding more liability into the FSCS.
The PFS has previously proposed the idea of a single solution,
creating a central fund with the financial capacity to protect both
firms and consumers from advice firm failures.
A single contribution to a non-commercial 'pooled risk' fund,
with an excess applying similar to PII, is likely to be lower and
more efficient than the current dual cost system.
Mr Richards said the idea of a single contribution was an
example of the type of "out of the box" thinking that needed to be
considered as part of the broadest possible review of PII and the
"It is pleasing that the FCA has acknowledged the need to more
clearly link product risk to FSCS charges but it is disappointing
that it has effectively ruled out the possibility of introducing a
"We have once in a generation opportunity to improve two markets
in desperate need of reform and I'd urge the regulator to take an
integrated approach and consider and investigate all options."
"Ultimately, we must implement a solution that builds
sustainability into the FSCS system, while promoting competition in
the PII market."
"Only then will cost pressures on firms be eased and smoothed,
in turn making professional financial advice more affordable and
accessible to consumers."
For further information please contact:
Joe Tauriello, media relations executive
Office: 0207 417 4765
Mobile: 07538 258285
Keith Richards, chief executive
Office: 0207 417 4474
Mobile: 07786 023033
Notes to Editors:
The Personal Finance Society
The Personal Finance Society's core objective is to serve the
public by guiding the advice profession. It is the leading
professional body for financial advisers and those in related
With more than 37,000 individual members, it promotes the
highest standards of professionalism by setting the standards for
technical knowledge, customer service and ethical practice across
the entire financial planning community. To achieve its aims, the
society provides its members with access to a programme of
continuing professional development, relevant qualifications,
learning materials, support services and many other practical
Operating under a Royal Charter, its primary objective is to
secure and justify public confidence and trust in its membership
and the profession more broadly.
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