The securities regulator in the United Kingdon plans to prohibit financial firms from buying insurance to pay for regulatory fines.

The Financial Services Authority said that regulated firms and individuals will not be able to use insurance to pay FSA fines under proposed new rules.

The changes are intended to ensure that anyone who is fined must pay the fine himself rather than claim it under insurance. The proposed changes reflect concerns that firms are increasingly taking out insurance policies designed to pay for FSA fines.

Firms will still be able to make compensation payments to consumers either from their own funds or from professional indemnity insurance.

“Our proposals are designed to plug a potential hole. Insurance to pay FSA fines not only reduces the impact of those fines but also lessens the incentive for firms and individuals to meet appropriate standards. We cannot allow such developments to go ahead unchecked,” said Carol Sergeant, managing director responsible for enforcement at the FSA.

The new rules would apply from Jan. 1, 2004.