Section 912B of the Corporations Act 2001 requires an Australian financial services licensee who provides financial services to retail clients to have in place arrangements to compensate those persons for loss or damage suffered because of breaches of obligations under Chapter 7 of the Corporations Act.
Current transitional arrangements
Under a combination of regulations and licence conditions, some licensees are currently subject to transitional compensation arrangements while the operation of section 912B is delayed. The transitional arrangements that affect your business are:
- Professional indemnity insurance requirements continue to apply to most responsible entities of managed investment schemes;
- Insurance brokers remain subject to the professional indemnity insurance requirements that applied under the superseded Insurance (Agents & Brokers) Act 1984.
The Insurance (Agents And Brokers) Regulations (Amendment) 1994 states:
3. New regulations 2B
3.1 After regulation 2A, insert: Extent of indemnity under contract of insurance-paragraph 9B (1) (c) of the Act "2B. (1) For the purposes of paragraph 9B (1) (c) of the Act, the following provisions of this regulation apply in regard to the extent to which a person is to be indemnified under a contract of insurance in respect of the prescribed liabilities arising out of or in the course of the person's business as an insurance intermediary. "(2) Subject to subregulation (3), the maximum amount payable as indemnity to a person under a contract of insurance referred to in subregulation (1): (a) if the person did not carry on business as an insurance intermediary in the financial year (in this regulation referred to as the 'previous financial year') immediately before the financial year in which the contract is entered into-must be not less than $1,000,000; or (b) if: (i) paragraph (a) does not apply; and (ii) 15% of the total amount of the premiums entered in the accounting records of the person in respect of his or her business as an insurance intermediary in the previous financial year does not exceed $1,000,000; must be not less than: (iii) $1,000,000; or (iv) the amount equal to 15% of the total amount referred to in subparagraph (ii); whichever is the greater; or (c) if: (i) paragraph (a) does not apply; and (ii) 15% of the total amount of the premiums entered in the accounting records of the person in respect of his or her business as an insurance intermediary in the previous financial year exceeds $1,000,000; must be not less than $1,000,000.