The Financial Conduct Authority (FCA) has warned principals to check their professional indemnity insurance (PII) cover, after a review showed nearly 10% of firms sampled, needed to make changes to their policies or their business model to meet its rules.
The FCA reviewed PII documentation from 269 principals in July 2024.
It revealed it has worked closely with principal firms where it found problems and, in some cases, temporarily stopped business activity until compliant PII cover was put in place.
According to the regulator, 11% of insurers, 7% of advisers, 11% of mortgages firms and 9% of wealth management companies took action following engagement from the FCA.
The FCA first highlighted the issue with principals in July 2023 and reminded them about it in January 2025’s monthly regulatory newsletter.
It told principals firms should check their PII cover and ensure it is compliant with FCA rules, as set out in MIPRU 3.2, IPRU-INV 13 and related provisions in the FCA’s Handbook.
The regulator revealed non-compliant PII policies identified by the regulator included firms having incorrect indemnity levels or cover that did not include the activities of their Appointed Representatives or Introducer ARs (IARs).
It further pointed out PII provides added consumer protection and extra financial resources to pay justified claims where things go wrong and also helps prevent insolvency and excessive claims on the Financial Services Compensation Scheme.
Jane Savidge, head of Appointed Representatives at the FCA, said: “The majority of PII policies we reviewed were fit for purpose, but many principals will be leaving themselves, and potentially their customers, exposed with gaps in cover.
“Principals are responsible for ensuring that they hold appropriate PII cover that includes their representatives.”