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ASIC Guidance on Compensation and PI Insurance Arrangements for AFS Licensees

Applies to most AFS licensees who provide financial services to retail clients


What’s new?

All AFS licensees providing financial serives to retail clients must hold professional indemnity insurance:

  • New licensees must comply with the implementation period from 1 January 2008
  • Pre-2008 licensees must comply with the implementation period from 1 July 2008
  • All licensees must have higher standard PI insurance by 1 January 2010

The minimum standards for PI insurance from 2008 include:

  • having insurance provided by an APRA regulated insurer
  • the insurance must have an aggregate limit of indemnity of at least $2 million or higher based on revenue
  • insurance that covers breaches of Chapter 7 of the Corporations Act, External Dispute Resolution scheme awards and fraud of representatives, employees and agents
  • licensees are required to undertake analysis of their business, risk management systems and the insurance cover to identify gaps in cover
  • licensees must have additional financial resources to cover gaps in their policy
  • licenseees must also take steps over time to improve their arrangements

What do you need to do?

Ensure you have PI Insurance that meets the minimum requirements of ASIC Regulatory Guide 126 Section D by 1 July 2008.

If you have a lodged a security bond with ASIC previously, you may apply to have the bond cancelled and funds returned to you. (If you have a securities authorisation you will have lodged a $20,000 bond with ASIC as part of your licence conditions).

Diary to ensure your PI Insurance meets the minimum requirements of ASIC Regulatory Guide 126 Section C by 1 January 2010.

Financial Industry Compliants Service Members

FICS Members should note that FICS have recently raised their monetary limits for claims, so you will need to check your PI insurance to see if you are adequately covered. If not, and your policy is due for renewal between 1 July 2008 and 1 December 2008, FICS will offer temporary relief from the increased limits.

To take advantage of this relief you must apply to FICS before 1 July 2008 and satisfy FICS that you have made reasonable attempts to obtain adequate PI insurance coverage.

See the FICS website for the full details and further information: www.fics.asn.au/monetary.asp

Further information

Contact your Certainty consultant at (02) 9238 8091 or enquiries@certaintycompliance.com.au

A copy of ASIC Regulatory Guide 126 can be found on ASICs website: www.asic.gov.au