The PIA had hoped to impose a cap of pounds 9.5m a year on the compensation liabilities faced by the mostly small firms of financial advisers. But the insurers' intransigence has forced the PIA to consider separate compensation arrangements for personal pension transfers - an area where regulators expect widespread malpractice to produce compensation claims running into hundreds of millions of pounds.
One insider said yesterday that Colette Bowe, the PIA's chief executive, was worried by the need to ring-fence personal pension transfers - the largest scandal facing the financial services industry - from the main Investors Compensation Scheme. The ICS shares compensation costs between different categories of financial companies.
Any separate arrangements for personal pension transfers that exposed financial advisers to unlimited compensation claims made on other similar firms could threaten the viability of the IFA sector. Financial advisers lack the resources available to insurers and banks. Investors would be reluctant to deal with financial advisers if they thought they would incur an increased risk of losing out on compensation in the event of problems.
One PIA director said: 'Everybody's concerned about the issue. There's a lot of jockeying for position. It's blown up at the last minute.' The PIA will have to resolve the problem quickly since it intends to issue its prospectus early next week.
Another director said Ms Bowe 'may be stumbling towards a solution but I don't think she knows what that is. Nobody has shown the leadership to get it solved. I think it behoves (the Securities and Investments Board, the senior financial regulator) to tell us what's going to happen.'
It is thought the SIB's board meeting yesterday decided it was 'minded to recognise' the PIA as the regulator for the private savings market. The SIB is also expected to announce next week that it intends to de-recognise Fimbra and Lautro, the existing regulators in the sector. It hopes this will force most life insurers and financial advisers to seek authorisation from the PIA.Reuse content