The Chartered Institute for Securities & Investment (CISI) has raised concerns with the FCA at the decision to increase the Financial Ombudsman Service’s (FOS) compensation limit from £150,000 to £350,000 from 1 April, as it may have serious unintended consequences for its member SMEs.
In a letter to the FCA CEO Andrew Bailey, CISI CEO Simon Culhane Chartered FCSI acknowledges the importance of ensuring adequate consumer protection. However, he points out that professional indemnity (PI) insurers were already facing a hardening market, with the April FOS increase now only serving 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 says.
Mr Culhane also raises the issue of the misconduct of the few seriously impacting the costs to many CISI member firms who are conducting their business with integrity: “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”, says Mr 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.