UK - Professional indemnity rule modifications will give IFAs struggling to meet their insurance costs little or no help at all, a consultant claims.
The compliance expert believes the Financial Services Authority’s attempt to make cover more accessible to IFAs is in vain and many firms will be forced out of business.
CCL chairman Marc Egerton said: “Most firms offered cover under the new modified rules would have been able to obtain it under the old rules. And most financial advisers unable to obtain cover under the old rules will still be unable to obtain compliant cover under the new modified rules.”
He estimates the IFA sector would lose at least 500 firms as a result of suspensions and terminations by the end of the first quarter 2003.
The FSA has made it clear that unless firms are able to demonstrate that their capital resources are sufficient to avoid the need for PI insurance the firms will go out of business.
CCL has identified a number of contingency plans for IFAs, including the possibility of setting up a new company which would take on the liabilities of the old company.
The advantage of this approach, it claims, is that the new company would be able to obtain compliant PI cover at a reasonable cost - as there are no carried forward liabilities for the PI insurers.
Claims arising from the old company would be met by the firm from its own resources.
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