UK's Financial Services Authority Bans Insurance Cover For Regulatory Fines

Regulated firms and individuals will not be able to use insurance to pay FSA fines under new rules approved yesterday. This change, which comes into effect from 1 January 2004, is intended to ensure that anyone who is fined must pay the fine themselves rather than claim it against insurance.

Andrew Whittaker, FSA Counsel General, said: "Insurance to pay FSA fines undermines their impact as an incentive to good conduct. This move will improve the effectiveness of regulation by closing that loophole."

Background

1. Details of the rule change are set out Policy Statement The Prohibition of insurance against financial penalties imposed by the FSA published today and available here.This contains feedback on the original proposals which were consulted on in CP 191 (Chapter 2) published in July 2003 and also available here.
2. The prohibition applies to regulatory fines imposed by the FSA. Firms will still be able to make compensation payments to consumers either from their own funds or from professional indemnity insurance and still be able to meet the cost of defending proceedings from insurance.
3. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; the protection of consumers; and fighting financial crime.
4. The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.