Q&A

Question Policy Statement 174 (PS174) has a significantly lower professional indemnity insurance (PII) requirement, which will be welcome news to brokers paying the higher premiums to meet the GISC's higher PII requirements. Will GISC lower its requirement accordingly?

Answer The board is aware that in the lead up to 14 January 2005 there may be a perceived conflict between a minor number of FSA and GISC rules. While it is believed that the areas of potential conflict are likely to be few, the board has agreed (as explained in Regulatory Bulletin No. 9) not to pursue regulatory action with firms where there is non-compliance with GISC rules if the firm has applied to the FSA for authorisation and appears to GISC to have adopted and be in compliance with corresponding FSA rules. Members will, however, in accordance with Rule F30.4 be required to notify GISC in the event of their potential non-compliance with GISC rules. The FSA will not be issuing its final rules until January 2004. While PS174 does set out the near final rules for PII, the document makes it clear that the proposed rules take account not only of the consultation responses FSA received to CP174, but also the FSA's revised policy approach to professional indemnity requirements for investment firms, which are set out in CP193. PS174 confirms that some of the decisions that the FSA has taken are, therefore, subject to the outcome of the CP193 consultation that closed on 29 October 2003 and that, if necessary, it will incorporate any changes arising from that consultation before it makes the final rules in January 2004. The FSA professional indemnity requirements also have to be considered along with the FSA's proposed capital requirements, which are more stringent than GISC's.The FSA also confirmed in PS174 that whatever the final level of indemnity and requirements for excesses and coverage set for PII in the FSA's final rules, under the Principals for Businesses, it remains the responsibility of a firm's senior management to satisfy itself that on a reasonable basis the minimum level of cover for PII is adequate to meet foreseeable contingencies. Similarly, GISC members are obliged under the membership section of the rules to organise their internal affairs in a prudent manner, taking into account the size, nature and complexity of their business, and to maintain adequate financial resources to meet their commitments. Accordingly, members must make a realistic assessment of their foreseeable business requirements and we will not, therefore, expect members to be reducing the level of professional indemnity cover currently held.