On 26 April 2013, the Minister for Financial Services and Superannuation announced that the Government will strengthen the professional indemnity insurance requirements for Australian Financial Services Licensees (‘Licensees’). These changes were announced as part of the Australian Government’s response to the report, Compensation arrangements for consumers of financial services (‘the St John Report’). Currently, licensees are only required to provide information on the adequacy of their indemnity insurance when applying for a license. Guidance from the Australian Securities and Investments Commission (ASIC) recommends that licensees undertake their own assessment of their indemnity insurance on an ongoing basis to ensure it reflects their business needs, including risk exposure. The St John Report found that the self‑assessment process presented a risk that licensees were not maintaining adequate indemnity insurance coverage. It also reported advice from consumer advocates that attempts to seek compensation from licensees by consumers who have suffered loss, have been frustrated due to inadequate indemnity insurance coverage. Under the proposed changes:
- licensees will be required to provide the Australian Securities and Investments Commission (ASIC) with a certificate of currency for its indemnity insurance and a declaration (signed by senior management) that the indemnity insurance meets established standards of adequacy; and
- auditors will be required to assess and state their opinion on the adequacy of licensees’ indemnity insurance.
The proposed changes will result in some additional (unquantified) costs for licensees in terms of administration and auditing expenses, however the changes should provide higher levels of certainty to consumers that claims for compensation can be met. A Regulation Impact Statement was prepared by the Treasury and assessed as adequate by the Office of Best Practice Regulation.
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