PI key for CSLR sustainability
The viability of a true indemnity of last resort (CSLR) scheme is only guaranteed if all Australian financial services licensees have adequate professional liability insurance (PII), according to CPA Australia.
In a submission to the Sterling Income Trust survey, CPA Australia recommended that the Treasury include a government-funded thematic review of PIIs for the retail personal advice industry. He said the main risks included accessibility, adequacy, exclusions and impact on the licensee’s capital adequacy.
It also recommended that the Australian Securities and Investments Commission (ASIC) require all licensees to submit details of their PII coverage as part of existing annual compliance obligations.
The APC noted that a contributing factor to the need for the CSLR was the failure of the PII to respond appropriately to disputes, which often resulted in decisions assigned by the complaints authority remaining unpaid.
“Accessibility and affordability of PII for the retail personal advice industry has been a challenge for many years, with the impact of the Royal Commission on Financial Services leading to the exit of some PII providers from the market,” said he declared.
âThe reduced nature of the coverage available and the associated risk premiums has led many Australian Financial Services (AFS) licensees to increase their deductible or accept coverage exclusions to secure personal information on an ongoing basis. It is also not uncommon for the PII approval process to take three to six months.
âTo ensure adequate consumer protection and the viability of a true CSLR, AFS licensees must be able to access affordable coverage that is appropriate to the nature of the licensee’s business and that can adequately address the liability. potential for compensation claims. “
The CPA said the business regulator only assesses whether PII coverage is appropriate for a license holder at the time of application or as part of a surveillance activity. This was in contrast to registered tax agents and Business Activity Reporting Agents (BAS) who had to prove the renewal of their registrations.
âWe recommend that ASIC adopt a similar model for AFS licensees. This model would have many advantages, including:
- Ensure that AFS license holders continue to have appropriate PII coverage;
- Send a signal to all participants that the regulator will proactively regulate this obligation, motivating certain non-complaint or at-risk AFS licensees to maintain appropriate coverage; and
- Provide insight to the regulator on trends and issues that may arise in the PII market.