Client Compensation Arrangements

A recent targeted review of professional indemnity (PI) insurance by ASIC has found that most small companies holding AFS licences had PI insurance that met regulatory requirements They found, generally, that the small AFS licensees that were reviewed had policies with an overall indemnity limit that complied with requirements.

What they did find, however, was that there were inconsistencies in the approaches AFS licensees take to document their annual review of their PI policies.

Following the review ASIC has provided a checklist for licensees and they encourage all AFS licensees to:

  • read RG 126 to understand the level of PI insurance they require;
  • document the annual review of their PI insurance needs;
  • obtain defence costs cover in addition to the minimum indemnity level;
  • check if their policy covers acts of fraud or dishonesty by directors, employees and all of the other representatives;
  • be aware of limitations and exclusions in the PI policy;
  • inform the PI insurance provider of any material changes to the advice business, such as an increase in the number of advisers or revenue; and
  • remember that, while they can work with an insurance broker to arrange cover for them, they cannot rely on the broker to ensure the policy complies with RG 126. Ultimately the licensee is
  • responsible for obtaining PI insurance that complies with RG 126.

Here at Gold Seal we are often advised by licensees during an audit that their PI cover has been arranged through a scheme or facility with the presumption that it must therefore be “adequate”. The checklist from ASIC is a reminder that it is up to the licensee to carry out an annual review of their PI insurance arrangements, to document the review and to ensure that the cover is adequate based on their own circumstances.


2017-11-13T14:39:59+00:00November 13th, 2017|News|