One professional indemnity insurance expert has recently raised the question of whether there was any impropriety at play in the Financial Services Authority’s decision to propose regulatory changes on compensation awards.
The FSA recently made the suggestion that the incoming regulator, the Financial Conduct Authority, should pursue increased powers whenever it makes compensation awards in response to Financial Services Bill draft’s joint committee. The regulator can only currently award compensation payments to the extent that a breach of rules or poor advice has caused a loss, but the FSA asked whether the future regulator should have the ability to award full recompense to any complainants in order to cover 100 per cent of their losses, even if the breach was not contributory to a claimant’s loss or was only a minor breach.
However, the professional liability insurance expert issued a warning that any such decision could be seen more as a desire to preserve the resources of the regulator rather than institute protective measures for customers. The FSA could stand to benefit if this change were to be implemented, claimed the business liability insurance expert, adding if the only requirement for full compensation is to prove a minor rule had been breached, any ‘dumbing down’ of the burden of proof could lead to significant reductions in the level of expertise and the time required to investigate customer complaints.
Instituting such a change would only act to impose massive financial burdens on the advisory industry, the expert also said, because insurance premiums would have no choice but to increase in order to meet rising awards levels in what would essentially be no-fault compensation.