No one, not even ASIC, is checking PI insurance says FPA

Mike Taylor

Managing Editor/Publisher, Financial Newswire

16 December 2021

The professional indemnity (PI) regime covering financial advisers is being administered but it is not being regulated with the result that the Australian Securities and Investments Commission (ASIC) cannot be sure of the quality of cover held by advice firms.

That was the assertion of Financial Planning Association (FPA) head of Policy, Strategy and Innovation who told a Senate Committee that nobody was actually checking whether firms had appropriate levels of PI cover in place.

Appearing before a hearing of the Senate Economics Committee inquiry into the collapse of the Sterling Investment Trust, Marshan confirmed that consumers were on safer ground when dealing with advisers because they were covered by PI and had recourse the Australian Financial Financial Complaints Authority (AFCA).

However, he said that while advisers were required by the Corporations Act to be covered by PI, the regime was not being proactively regulated.

“There is a requirement under the Corporations Act that financial advisers be covered by PI – there are consumer protection mechanisms – [but] at this point, from our conversations with ASIC, from what our members tell us three is no proactive regulation of that by the regulator,” he said.

“There are check boxes that you have to tick to say that you have got professional indemnity insurance in place or other compensation arrangements in place but nobody is actually checking up on that,” Marshan said.

“So there are instances from our conversations with AFCA and from the evidence that Treasury provided when there will be PI policies in place or compensation arrangements in place that don’t respond to instances that are absolutely in the jurisdiction of AFCA and should absolutely be covered by the policies but no one is actually checking that when you tick a box you’ve actually got the correct policy in place or whether you’ve even got a policy in place.”

“So, in that sense, consumer compensation is being administered, its not being regulated,” the FPA policy head said.

“So to your question about whether there was sufficient insurance in place in the case of Theta and Sterling I’m assuming that Theta had insurance in place, that boxes were ticked to say they had consumer protection in place but it was clearly not sufficient to compensate consumers,” he said.

Marshan said that he believed that if products are too risky to attract insurance then there should be a warning that “these are non-compensatable products”.