PIA considers cap on financial compensation

NIC CICUTTI

Thousands of victims of fraud or bad advice face the risk of a cap on any compensation they receive, under new plans now being considered by the Personal Investment Authority, the City regulator.

The PIA is discussing whether to scrap a requirement for its 4,000 independent financial advisers to have professional indemnity cover, to meet claims from dissatisfied investors.

Instead, the regulator suggests that advisers could make bigger payments to the Investors Compensation Scheme, the savers' safety net.

Another alternative would be to relax rules for advisers who have indemnity insurance, allowing them to negotiate cheaper cover.

The PIA's comments, outlined in a discussion document yesterday, admit that, unlike claims met by indemnity insurers, the Investors Compensation Scheme has a maximum limit of pounds 48,000 on payouts. It also accepts that having indemnity insurance is good business practice.

But the document adds that forcing IFAs to have cover means if they cannot obtain it they are not allowed to trade. In effect, the regulator surrenders its vetting powers to insurers.

A PIA spokesman said: "Professional indemnity has been a constant issue for years. There are arguments on both sides and we want to hear people's views on this subject, including what the alternatives are."