The minimum level of professional indemnity insurance (PII) required for FCA-regulated financial advisers is set out in the FCA Handbook, specifically under the MIPRU (MIPRU 3.2.7) and COBS (Conduct of Business Sourcebook).

For most financial advisers (those providing regulated financial services like investment advice, retirement planning, and insurance advice), the minimum PII requirements are typically based on the following guidelines:

1. For Firms Providing Investment and Financial Advice

  • Minimum Cover for Professional Indemnity:
    • €1.25 million per claim.
    • €1.85 million in total cover (aggregate limit for all claims in one year).

The total Professional Indemnity Insurance (PII) must cover both individual claims (e.g., €1.25 million for each claim) and aggregate claims (e.g., €1.85 million in total for all claims over a 12-month period).

2. Excess

Firms must also pay special attention to the excess requirements which are defined within the FCA handbook. Most IFAs would not hold client money. The FCA states that for a firm thatdoes not hold client money or other client assets, the excess must not be more than the higher of:

  1. £2,500; and
  2. 1.5% of annual income.

If you have an excess which is higher than what is prescribed above please refer to section 5 below.

3. Exclusions

Likewise, if your PII has exclusions, then you will carefully need to consider the additional rules on PII. The FCA requires firms to hold additional capital where their insurance has significant policy exclusion which effects the breadth of insurance cover, see FCA guidance here.

4. Policies covering more than one firm

If you have acquired a smaller IFA or have subsidiaries which are separate entities and separately regulated companies, you must also pay special attention to the FCAs rules on a policy covering more than one firm,

If a policy provides cover to more than one firm, then:

  1. the limits of indemnity must be calculated on the combined annual income of all the firms named in the policy; and
  2. each firm named in the policy must have the benefit of the relevant minimum limits of indemnity.

5. Additional capital

Under MIPRU 3.2.14 of the handbook if a firm is unable to obtain PII with an excess of £2500 or 1.5% of annual income, it must pay special attention to the additional capital requirements. It is also possible for firms to seek a higher excess, if they wish to do so, assuming the professional indemnity insurers offer a premium reduction in exchange for the higher excess.

The handbook states

“If a firm seeks to have an excess which is higher than the relevant limit, it must hold additional capital as calculated in accordance with the appropriate table below as show here” – 

Table: Calculation of additional capital for firm not holding client money or other client assets (£000’s)

Conclusion

For FCA-regulated financial advisers, the minimum professional indemnity insurance levels are:

  • €1.25 million per claim and €1.85 million aggregate for investment and financial advice firms.
  • Pay special attention to the excess applicable to its PII, and any impact of capital adequacy
  • Ensure the policy does not cover more than 1 regulated business, if it does ensure compliant cover
  • Pay special attention to policy exclusions and any impact on capital adequacy

Firms should always ensure their coverage meets these minimums and also consider whether cover higher than the minimum levels of required should be considered. If you need guidance on the levels of cover, or would like us to check if you current policy is compliant with existing regulations please get in touch.