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Compensation and Insurance Arrangements

RG 126 has introduced minimum standards for licensees’ Professional Indemnity insurance protection. The regulations will be introduced in two stages:

  • Stage 1. From the 1 July 2008
  • Stage 2. This will undergo further review before 1 January 2010

Stage 1 Changes

  • Policy must comply with the following minimum standards:

    • APRA approved insurance
    • Amount of cover for any one claim and in the aggregate:
      • Retail clients and revenue  less than $2million - $2million limit
      • Revenue  more than $2million – an amount about equal to actual or estimated revenue with up to a maximum limit of $20million.
    • At least one automatic reinstatement unless amount of cover is double the guidelines above
    • Defence costs additional unless could be readily absorbed in amount of cover in excess of minimum
    • Cover must include indemnity to licensee and representatives due to Chapter 7 breaches under Corporations Act causing loss damage to retail clients
    • Cover must indemnify for fraudulent acts of directors, employees, representatives of the licensee and also under any External Dispute Resolution (EDR) Schemes
    • Cover must not treat ASIC breach reporting requirements as an admission of liability under policy exclusions
    • The policy must provide retroactive cover if previous policy was for 12 months to expiry 30th June, 2008
    • Excess/deductible levels must be at a level that could be confidently sustained by the licensee.
  • A statement about the type of compensation arrangements in force must be included in all Financial Services Guides (FSG).
    • All FSG statements must now:
      • Disclose that the licence has PI insurance in place; and
      • Explain whether the insurance will cover claims in relation to the conduct of representatives who no longer work for the licensee but who did at the time of the conduct.
    • It is NIBA’s recommendation that all new business clients and all existing clients at renewal stage, be given the revised FSG. Below is an example of the wording that should be used:

Professional indemnity insurance arrangements
We and our representatives are covered under professional indemnity insurance that complies with the requirements of section 912B of the Corporations Act.
[Now insert relevant option below and/or amend as applicable]

# The insurance (subject to its terms and conditions) will continue to cover claims in relation to our representatives/employees who no longer work for us (but who did at the time of the relevant conduct).

# The insurance does not cover claims in relation to our representatives/employees who no longer work for us (but who did at the time of the relevant conduct).

Authorised representatives version

We and our authorising licensee[s] are covered under professional indemnity insurance that complies with the requirements of section 912B of the Corporations Act.

[Now amend as applicable depending on cover arrangements in place with each licensee]

# The insurance (subject to its terms and conditions) will continue to cover claims in relation to the authorising licensee[s] representatives/employees who no longer work for them (but who did at the time of the relevant conduct).

# The insurance does not cover claims in relation to representatives/employees of the authorising licensee[s] who no longer work for them (but who did at the time of the relevant conduct.