FCA exploring third-party audits for financial advisers

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The Financial Conduct Authority (FCA) is considering introducing third-party audits for financial advisers in an attempt to make professional indemnity insurance (PII) more affordable.

The proposal has been revealed in the regulator’s recently launched Consumer Investments Strategy. The FCA says it wants to create conditions for firms to show that they have given good advice, so they can “secure PII that is appropriately priced.” It suggests that third-party audits could be a way for firms to demonstrate the quality of the advice they have given.

The FCA also says it is monitoring developments in the market for PII and will communicate with firms about its expectations.

The cost of PII has risen in recent years, driven in part by concerns around negligent pension transfer advice. Data published by the FCA earlier this year shows that firms with revenue of up to £100,000 could be paying 5% of that revenue for PII cover.

James Burgoyne, Divisional Director – Claims & Technical, Brunel Professions said: “This is an interesting suggestion from the FCA, and is reminiscent of a common strategy used by insurance brokers when trying to place cover for a firm facing multiple declinatures from insurers due to perceived risk. It is disheartening that it is being suggested for an entire profession rather than a single firm, but is realistic when the insurance market is being reported as having shrunk from 15 insurers to only 5 willing to offer cover. If introduced it will inevitably increase costs for advisers, which will not be welcome.”

The FCA has published its press release and Consumer Investments Strategy on its website. A report about the audit proposals has been published by FT Adviser, and KPMG has published an Insight article on the FCA’s strategy.

Brunel secures competitive professional indemnity insurance cover for financial services professionals. To find out more visit the Brunel website or call Mark Sommariva on 0203 475 3275.