Compensation and insurance arrangements

RG 126 has introduced minimum standards for licensees’ Professional Indemnity insurance protection. Policy must comply with the following minimum standards:

  • APRA approved insurance
  • Amount of cover and automatic reinstatements as stipulated in RG126:
  • 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
  • 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.