ASIC urged to check AFSL’s PI status annually
Australian Financial Services Licensees should be made to prove the currency of their professional indemnity (PI) insurance on an annual basis to help relieve pressure on the Compensation Scheme of Last Resort (CSLR).
The SMSF Association has urged that the Australian Securities and Investments Commission (ASIC) take a more proactive approach to regulating the sector, including checking the status of PI cover.
“ASIC should build stronger engagement channels with the sectors it regulates. This could include establishing dedicated working groups to provide industry insights and share information more readily, including alerting the regulator to potential red flags,” it told the Treasury review of the CSLR.
“Importantly, this must be genuine two-way communication for this measure to be effective,” it said.
“Another important factor to ensure the viability of the CSLR is to ensure that all AFS licensees continue to hold appropriate PII cover,” the SMSF Association said.
“It is our understanding that ASIC currently only assesses if PII cover is appropriate for an AFS licensee at time of application or as part of a surveillance activity. The SMSF Association recommends that ASIC requires AFS licensees to demonstrate, on an annual basis, that they continue to hold appropriate PII that meets their statutory obligations.”
The SMSF Association said this could be achieved by requiring AFS licensees to submit a copy of their PII Certificate of Currency when lodging their annual FS 70 and FS 71 forms.
“While ASIC may not have the resources to review each individual certificate of currency for compliance, it could analyse samples from each relevant sector to confirm compliance or identify any emerging risks that may need early intervention within a sector,” it said.
Professional financial advice is overburdened with far too many reporting obligations, which do nothing to protect consumers, but do a great deal to make advice more complex and expensive than it needs to be.
However this proposal for licensees to submit PI certificates annually, makes a lot of sense. It should REPLACE some of the current useless reporting obligations, rather than becoming yet another layer on top.
I am quite surprised to see this from ‘SMSF Association’ (a little bit nebulous is it not). All AFSL’s need to be audited annually. Competent audit requires substantiation of the PII cover. Why duplicate this? Focus on the other failings of CSLR.
All AFSL’s are legally required to be financially audited each year, with an audit report submitted to ASIC. But that financial audit does not require substantiation of the PI cover, and doesn’t cover any compliance related issues.
Most AFSLs also choose to get a separate compliance audit periodically, and most of those audits do include substantiation of PI cover. However those audits are entirely voluntary, non binding, and do not need to be lodged with or reported to ASIC.
Financial auditors are required to sign off that the afsl is meeting its licence conditions. This includes PI and compliance. Any auditor that does not request a copy of the PI certificate is negligent in my opinion