Independent financial advisers will be facing substantial increases to their PI insurance and capital adequacy requirements in the event of the UK neglecting to maintain Mifid adviser exclusions, according to business insurance provider Zurich.
The Financial Services Authority currently requires personal investment companies to have a total of £10,000 held over for minimum capital adequacy, but new rules will see this figure rise to a total of three months’ worth of yearly fixed expenditures, with a £20,000 minimum, from the beginning of 2016. When the directive was introduced in 2007, the Government had been able to secure a Mifid opt-out for IFAs in the UK.
The opt-out holds no sway over UK businesses that passport into other countries in Europe that hold money for their clients or conduct investment business, both of which operate under Mifid. Mifid companies that are not given protection under the insurance mediation rules have the choice of either holding £1.3 million worth of professional liability insurance cover, or hold capital resources in the neighbourhood of £44,000, and businesses covered by Mifid and the IMD must either have an additional £655,000 in business liability insurance cover or hold £22,000 more than before in cash.
Matthew Connell, industry and government affairs principal for Zurich’s UK division, stated that if Europe cannot be convinced to maintain the regulator opt-out, advisers in the UK will suffer accordingly. If there was any region where the rules of the FSA might be overridden by European ones, he says, capital adequacy would be it.
The FSA is most likely going to have a fight on its hands if it wants to ensure that the European versions of the rules do not once more extend IFA capital requirements, added Mr Connell.