A targeted review of professional indemnity (PI) insurance by ASIC has found that most small companies holding Australian financial services (AFS) licences had PI insurance that met regulatory requirements. We found, generally, the small AFS licensees that we reviewed had policies with an overall indemnity limit that complied with requirements.
The review focused on the adequacy of cover for defence (legal) costs, and fraud and dishonesty, in the policies offered by two insurance companies to small AFS licensees. It followed on from ASIC’s Report 459 Professional indemnity insurance market for AFS licensees providing financial product advice, December 2015 (REP 459), which highlighted these as areas of concern.
The review found that three of the 56 AFS licensees reviewed did not have PI insurance that complied with the defence costs requirements in Regulatory Guide 126 Compensation and insurance arrangements for AFS licensees (RG 126). Following our intervention, these licensees have obtained improved PI insurance, or are in the process of doing so.
Following the conclusions in REP 459 which highlighted fraud and dishonesty cover as a particular risk, ASIC has worked with the two insurance companies to help them make changes to their standard policy terms to ensure that their fraud and dishonesty cover allows insured licensees to comply with RG 126.