To carry out certain regulated activities, accountancy firms may need to purchase additional levels of Professional Indemnity Insurance. Failure to do so could leave you exposed to risk in the event of a mistake, oversight, or third-party claim.
Below, we explain the requirements for Designated Professional Body, CILEX-, and CAA/ATOL-registered accountants.
PII Minimum requirements
Professional Indemnity Insurance (PII) is compulsory for all ACCA members who hold a practising certificate and engage in public practice and regulated activities in the UK and Ireland. PII policies provide cover for practitioners against claims for professional negligence. The limit required for PII is dependent on a firm’s relevant total income, details of which can be found in the ACCA PII Regulations (opens a new window).
Crucially, these are minimum requirements. Certain regulated work will require higher levels of PII cover arising from legislative requirements, or the requirements set by national bodies or regulators in a particular sector.
PII requirements for regulated work
Designated Professional Body (Investment Business)
ACCA members are able to carry out a limited number of ‘exempt’ regulated activities (opens a new window) under the Financial Services and Markets Act 2000, without the need to obtain Financial Conduct Authority (FCA) approval. These activities include mortgages, long-term care insurance, and insurance distribution activities.
The level of PII required to undertake these activities varies:
For mortgages and long-term care insurance, there is no separate PII requirement and normal rules will apply. However, an ACCA firm wishing to carry on insurance distribution must comply with professional indemnity insurance requirements under the insurance distribution directive (IDD).
Firms undertaking insurance distribution services are required to hold professional indemnity insurance (PII) equivalent to at least €1,250,000 per claim and €1,850,000 in the aggregate (total). Note that referring a client to another adviser is not an insurance distribution activity and is therefore not subject to the regulations.
CILEX
ACCA Accountants are able to offer probate services to their clients by becoming authorised as CILEX Practitioners (ACCA-Probate) and setting up a separate CILEX-ACCA Probate Entity.
As part of the requirements (opens a new window) to become an authorised CILEX Practitioner, firms authorised and regulated by CILEX must take out and maintain PII in accordance with the CILEX Professional Indemnity Insurance Rules (opens a new window).
The minimum level of cover is £2 million (any one claim, excluding defence costs) and applies regardless of the actual wording of the policies.
Before taking out cover, firms must complete the CILEX Professional Indemnity Application Form, which can be used with CILEX qualifying insurers, and receive provisional authorisation. Once a quote has been agreed, firms should arrange for a copy of the insurance certification to be sent to CILEX.
CAA/ATOL
In addition to ACCA membership, ACCA members wishing to undertake CAA and ATOL reporting work must register (opens a new window) and complete the training required by CAA/ATOL to receive a license.
Under the eligibility terms for a CAA/ATOL license, members must hold PII that is at least sufficient to cover the liability cap in the CAA Guidance Note 10. The current liability cap (opens a new window) ranges from £250,000 to £20,000,000, depending on the number of passengers and the public revenue of the particular ATOL holder.
Protecting against risk
It is essential to check your limit of indemnity and any sub-limits to ensure you have the appropriate level of PII to cover the work your firm intends to undertake. This is not only to make sure that you comply with the relevant regulatory requirements, but also to make sure you are adequately protected against claims brought against you. Failure to do so could expose you to significant business risk and potentially loss of your own personal assets.
Please contact us if you need any guidance on the limits required.
For more information, visit Lockton’s ACCA Accountants (opens a new window) page.
