Small licensee PI investigation under way


By Sarah Kendell

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ASIC has confirmed it is conducting a surveillance project to test small licensees’ compliance with compensation and insurance regulations, which will continue until mid-2017.

A statement provided to financialobserver reveals the project is a follow-up to ASIC’s Report 459, which identified several gaps between common professional indemnity (PI) insurance policies in the advice market and the regulator’s minimum coverage requirements under Regulatory Guide 126.

“The project will involve ASIC collecting information from certain PI insurers and from a sample of advice licensees that fall within the definition of ‘small licensee’ as set out in Report 459 (ie those with around 20 authorised representatives or fewer, and revenue of $2 million or less),” an ASIC spokesperson said.

“We expect that the results from this project will allow us to better understand the level of PI insurance held by small licensees and the level of compliance with RG 126 in this sector of the [Australian Financial Services] licensee population.”

FPA head of policy and government relations Ben Marshan confirmed the association was aware the investigation was in progress, and that it was broadly supportive of the measures the regulator was taking to address coverage gaps in the PI market.

“There does need to be some reform and attraction of additional PI insurers into our market,” Marshan told financialobserver.

“It’s clear in some instances that coverage levels are too low.

“But what is more worrying is that because of increased premium costs people are trading off higher excesses, and when you get multiple claims it puts the practice under an additional burden.”

Marshan said the market’s issues would be difficult to solve given that its small size made it less attractive to PI insurers than other professional services sectors such as law and accounting.

He suggested a single statutory insurance fund for advisers could be worth considering.

“It’s something that will have to be explored given the talk of last resort compensation schemes in the last few months,” he said.

The introduction of such a scheme “would have a significant impact on the PI market, the way practices look to take out policies and the way ASIC regulates PI requirements for AFSLs.”

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