EC Examines Indemnity Insurance For Financial Services Intermediaries

by Ulrika Lomas, for LawAndTax-News.com, Brussels

13 April 2007

The European Commission announced on Thursday that it has adopted a report to the European Parliament and Council on the continued appropriateness of the requirements for professional indemnity insurance (PII) imposed on certain financial services intermediaries under EU law.

Professional indemnity insurance is a liability insurance designed to cover, either entirely or in part, sums to be paid by professionals - either as damages or resulting from approved negotiated settlements - to third parties as compensation for losses arising from acts, errors or omissions committed by the professional during the conduct of its business activities.

Community law (specifically the Directive on insurance intermediation, and the re-cast Directive on the capital adequacy of investment firms and credit institutions) requires some investment and all insurance intermediaries to obtain such insurance as a precondition to be able to provide services.

According to the EC:

"The analysis of the information provided by Member States as well as stakeholders in response to two rounds of consultation conducted by the Commission services suggests that, on the limited evidence that is currently available, the policy reasons that motivated the PII requirements imposed under EU law remain valid, and there is insufficient evidence to indicate that those requirements are no longer appropriate.."

"However, it is also clear that it is too early to make a comprehensive assessment of how those requirements impact on the service providers and consumers. A proper evaluation of the continued appropriateness of those requirements cannot be made without more practical experience and data, and that will not be available until the requirements under the Directive 2006/49/EC (Draft Capital Requirements Directive) have been implemented and applied in Member States for at least one year. Accordingly, the Commission will continue to monitor the situation if evidence of market failure emerges."

Internal Market and Services Commissioner, Charlie McCreevy added:

"This report deals with an important issue for both service providers and consumers. On the available evidence we should keep the existing indemnity insurance requirements, but since it is too soon for a full assessment we will continue to monitor the situation."

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