IN keeping with the increased requirement for the protection of professionals from liability and the safeguarding of the interests of the investing public, the Financial Services Commission (FSC) is currently in the process of consulting with members of the securities industry to broaden the insurance coverage for its members.

In a written response to queries from Sunday Finance last week, the FSC said it is currently exploring ways of making insurance coverage applicable to a wider cross section of the industry. Professional Indemnity Insurance (PI) is not currently a requirement for fund managers, and to date the FSC has only five individuals on record with PI coverage despite a requirement in the Securities Licensing and Registration Regulation for individual dealers and investment advisers to have PI.

“The FSC currently has a draft consultation paper entitled ‘Measures to Enhance the Prudential Regulations of the Securities Industry in Jamaica’ where there is a proposal for use of insurance to cover all or some elements of operational risk,” the FSC said.

According to the FSC, the current requirement is for individual dealers and investment advisors to have at least $2 million in PI. The proposal would seek to strengthen the existing requirement.

But while the need to strengthen the requirement exists, such a strengthening neither reduces nor increases the risks inherent in the securities business, nor does it eliminate other potential risks to participants and investors.

“It is simply meant to provide a minimum level of protection which can deal with operational risk type events. It is also worth noting that this coverage would not address all of the risks that are inherent in the securities industry including market risk, fraud or negligence,” the FSC said. The regulatory body also emphasised the need for investors to continue to do their due diligence.

“PI is just one aspect of the FSC’s prudential regime. Prudential requirements are not meant to give a zero probability of failure in any system. However adherence reduces such risks. The FSC continues to encourage investors to do their own due diligence as highlighted in our ‘think and check before you invest’ campaign,” the FSC said.

As to the matter of increased instances of claims once investors are aware that insurance exists, the FSC said it is not of the opinion that such a situation would occur or would impact the industry negatively. Securities dealers are not required to disclose whether or not they have PI.

“It is not clear to us that there is a correlation between knowledge on the part of investors that securities dealers are covered by PI and an increased number of claims. It is expected that any client who has suffered loss or damage would have an incentive to pursue claims irrespective of knowledge of PI or not,” the FSC said.

An examination, investigation or audit by the FSC or the dealers’ auditors could uncover where claims are legitimate or where there are improper actions on the part of securities dealers.

“There is also legislation that regulate the conduct and business practices of dealers and non-compliance with the requirements of such legislation can serve as an indicator of improper actions,” the FSC said.