The Financial Conduct Authority (FCA) should introduce 'tightly worded' mandatory professional indemnity (PI) insurance standards for advisers, according to an MP representing steelworkers who transferred out of their pension scheme.
Labour MP for Aberavon Stephen Kinnock (pictured) told New Model Adviser® that people who had been wrongly advised to transfer out of the British Steel Pension Scheme (BSPS) have missed out on compensation because insurers are not paying out.
'It is outrageous that so many hard-working steelworkers who have been looking forward to retirement are in this situation where they think they may have been ripped off,' he said.
'One of the biggest problems with this is that there seems to be no safety net through proper PI insurance.
'It is vital now that all of the loopholes get closed. The government and the FCA should agree tightly worded mandatory insurance standards, which must apply going forward.'
Compared with other professions, advisers have few minimum terms for PI insurance. Currently firms must meet a minimum limit of £1.08 million for a single claim and £1.6 million for claims in total, and ensure they are always covered when doing business.
However, as New Model Adviser® wrote earlier this month, many insurers insert exclusions for certain business, including defined benefit transfers, or set high excess limits that make it harder for firms to claim payouts. In contrast lawyers and accountants have strict minimum terms that must be met when obtaining PI insurance.
Speaking in a Westminster Hall debate last week Kinnock said it was 'absolutely extraordinary' that advisers did not have the same level of mandatory insurance coverage.
'It was made clear to us that there appears to be no mandatory level of insurance that financial advisers must take out so that they can be held to account and insurance pay-outs can be made,' he said.