Treasury consultation canvasses PII role for FAAA

Mike Taylor

Managing Editor/Publisher, Financial Newswire

16 December 2025

The Treasury consultation paper around the role of Professional Indemnity Insurance (PII) in the context of the Compensation Scheme of Last Resort is canvassing a role for professional bodies such as the Financial Advice Association Australia in becoming providers.

The consultation paper has pointed to the situation for lawyers and accountants and thrown open to debate whether similar arrangements could be put in place for financial advisers.

It states that industry bodies play a more proactive role in PII provision and coverage in different sectors.

“For example, each Australian jurisdiction requires lawyers, other than certain exempt lawyers, to hold or be covered by a PII policy approved by the relevant Law Council. Industry bodies in the accounting profession, such as CPA Australia and the Institute of Public Accountants, either provide PII to their members or have negotiated approved policies in partnership with insurers.

“PII is not currently provided by any financial services industry body. However, for some market segments, such as financial advice, there may be greater scope for industry body led solutions in the future,” the discussion paper says.

“Professions that are covered by a Professional Standards Scheme, such as lawyers and accountants are able to limit the civil liability exposure for its members, and this may contribute to greater stability in the PII market for these services.

“In order to be covered by a professional standards scheme, an industry body must demonstrate that its members operate at a sufficiently high standard,” it said.

The consultation paper also canvasses a closer oversight role on the part of ASIC but largely dismisses the concept due to cost and resourcing.

Importantly it also canvasses allowing the CSLR operator to pursue unpaid AFCA claims from PI insurers via subrogation rights.

It said the CSLR operator would be able to lodge a proof of debt in the winding up of a licensee where the CSLR has paid compensation on behalf of the licensee that is being wound up.

“The CSLR operator may seek to recover the protected proceeds of insurance from a licensee under administration or that is being wound up, where the licensee has lodged a PII claim and the CSLR operator has made a compensation payment to the consumer before the proceeds of insurance have been paid to the consumer,” it said.

“The CSLR operator may seek to recover its outlays from an insured’s PII insurer under existing law. However, the CSLR’s subrogation right itself does not empower it to make claims against a financial firm’s PII insurer, so any recovery action must be permitted by the relevant state legislation, which currently is not consistent nationally.

“The laws may include those in NSW, the NT and the ACT that allow a third party to take court proceedings against an insurer directly to recover a claim. They also include the laws that allow a third party to recover from an insurer of a deregistered licensee where the licensee had a liability to that third party and the licensee’s PII policy covered that liability immediately before deregistration.”