The Australian Securities and Investments Commission (ASIC) has made clear just how poorly it believes the Professional Indemnity Insurance (PII) regime works in protecting the interests of consumers.
The regulator has admitted PII is intended to protect licensees against business risk, not to compensate investors or financial consumers.
Answering questions on notice from Senate Estimates and around the same time as the Minister for Revenue and Financial Services, Kelly O’Dwyer flagged the Government’s views on a compensation scheme of last resort, ASIC declared that while it was compulsory for financial planners and others to hold PII, it believed the regime was inadequate.
“ASIC and others including industry associations, FOS and consumer groups have raised the shortcomings of PII as a compensation and consumer protection mechanism in a number of government inquiries and reviews including the [Financial System Inquiry] FSI,” the regulator told the Senate.
“PII is designed to protect licensees against business risk, not to provide compensation directly to investors and financial consumers. It is a means of reducing the risk that a licensee cannot pay claims because of insufficient financial resources, but has some significant limitations, including where there are insolvency issues or multiple claims against a single licensee,” ASIC said.
“Also, insurers who provide PII cover operate on a commercial basis, giving rise to issues including practical availability.”
“ASIC does not ‘approve’ PII arrangements and does not require evidence of annual or other periodic renewal of PII cover. We do, however consider AFS licence applicants' PII arrangements (at the time of the license application), conduct surveillance on licensees as risk warrants, and maintain a dialogue with stakeholders regarding any issues that might give rise to regulatory risk that licensees may not hold adequate PII