ASIC releases second paper on compensation and PI

ASIC has released a second consultation paper on its proposals for compensation and professional indemnity (PI) insurance arrangements for credit licensees.

As part of the National Consumer Credit reforms, this consultation paper calls for further feedback on ASIC’s proposals that all licensees that are not exempt will need to hold PI insurance cover at a set minimum (either $2 million or another amount), depending on the nature of their business.

It further proposes that this cover should include ‘run-off’ cover for claims made after the insurance policy has ended that have arisen from the acts or omissions of the insured during the period of insurance cover. ASIC is seeking feedback about whether this is likely to be available to credit licensees in the current market.

Further consultation was required due to amendments to the compensation requirements set out in the new exposure draft version of the National Credit Protection Regulations, released for consultation on November 20, 2009. The latest version of the regulations contains a new exemption for credit licensees that are regulated by the Australian Prudential Regulation Authority and licensees whose sole business is lending and who do not undertake any non-lending credit activities.

The National Consumer Credit Protection Bill 2009 (the Bill) and the exposure draft regulations require credit licensees to ensure they have adequate compensation arrangements in place. Licensees are required to meet this obligation by holding adequate PI insurance cover, unless they are exempted by regulation. Submissions on the proposals close on December 18, 2009.