ASIC has recently published a revised version of Regulatory Guide 126 (RG 126), which sets out ASIC’s guidance in relation to meeting the compensation requirements which apply to Australian financial services licensees. The publication of a revised version of RG 126 follows a review of professional indemnity insurance held by 56 Australian financial services (AFS) licences.
The review focused on the adequacy of cover for defence (legal) costs, and costs associated with fraud and dishonesty. It concluded that generally small AFS licensees surveyed had policies containing an overall indemnity limit that complied with requirements. Three of the 56 AFS licensees reviewed did not have PI insurance that complied with the defence costs requirements. ASIC has worked with these licensees to ensure they obtain PI insurance. ASIC has also worked with two insurance companies to amend their standard policy terms relating to fraud and dishonesty cover to ensure the amended terms comply with RG 126.
RG 126 has also been revised to clarify that fraud cover is not required by licensees that are single person companies (one director is the company's sole financial adviser/representative, shareholder and employee). This aligns the regime for single person companies with that which applies to sole traders.