The Chartered Institute for Securities & Investment (CISI) has raised concerns with the FCA over the increased Financial Ombudsman Service’s (FOS) compensation limit which, it said, will have serious unintended consequences for its member SMEs.
The limit has risen from £150,000 to £350,000.
CISI CEO Simon Culhane has written to the FCA, firstly acknowledging the importance of ensuring adequate consumer protection, but pointing out that professional indemnity insurers were already facing a hardening market.
And that the FOS increase now only serves to harden the market further “by potentially reducing the number of insurance providers but also by increasing costs significantly to advisory firms. We are receiving reports that premiums are more than doubling,” he told IFA Magazine.
He also said in the letter: “Our members are concerned, many of whom have satisfied the Institute’s criteria for their firms to be accredited, that it is the honest and trustworthy organisations who are forced to shoulder further costs in reaction to misconduct by others.”
The CISI warns in its letter that the burden of increased premiums for its SME members is a serious factor: “As a result of the rise in the FOS compensation limit, almost every firm is faced with an increased premium, some considerably more and our members, particularly the financial planning firms and smaller wealth management firms, are alarmed at the potential ramifications.
“The short notice given to advisory firms and the lack of wider consultation about the potential impact of this rise means that there may be serious unintended consequences as a result,” said Culhane.
The CISI has asked the FCA for urgent clarification for its financial planning and wealth manager members who may be affected by this increase in the FOS compensation limit.