The Australian Securities and Investments Commission’s (ASIC) first annual sweep of professional indemnity (PI) insurance data from financial advice licensees has uncovered reporting failures across 10 licensees – including one with genuinely inadequate cover that subsequently applied to cancel its licence. The findings arrive as a national debate over PI’s role in the advice compensation framework remains unresolved.
In 2025, ASIC collected PI insurance data from AFS licensees for the first time, using the new FS70 form submitted through its Regulatory Portal as part of annual financial statement lodgements.
ASIC’s September 2026 financial advice update confirmed the regulator identified 10 licensees – each authorised to provide personal advice to retail clients on Tier 1 financial products, and each with at least one adviser on the Financial Advisers Register (FAR) – that reported holding less than $2 million in cover.
That is the minimum required under Regulatory Guide 126. For licensees with total revenue from financial services to retail clients of $2 million or less, the threshold is $2 million per claim and in aggregate. For larger licensees, minimum cover should approximate actual or expected revenue, up to $20 million.
Nine of the 10 had understated their cover through data entry errors and resubmitted corrected figures after ASIC made enquiries. The 10th had a genuine compliance failure: it had misunderstood its obligations and held a non-compliant policy. Following ASIC’s intervention, that licensee lodged a breach report and submitted an AFS licence cancellation application.
The FS70 is now an annual requirement. The scrutiny it enables will recur each year.
For brokers placing PI cover for AFS licensees, the nine data entry errors may be more commercially significant than the single genuine under-insurance case. A licensee that holds adequate cover but cannot accurately describe it in a regulatory filing has a process problem – one where a broker’s working knowledge of policy terms and regulatory requirements is directly relevant.
PI policies for AFS licensees carry specific requirements that are not always straightforward. Regulatory Guide 126 requires cover for breaches of the Corporations Act, fraud or dishonesty by representatives, external dispute resolution scheme awards, and defence costs that sit above – not within – the minimum indemnity limit. That last distinction is a documented source of confusion.
ASIC flagged transparency concerns in an earlier market scan of the PI insurance market for AFS licensees, conducted between November 2024 and February 2025. “We have noted these findings and are considering ways in which these issues and concerns may be addressed,” the regulator said at that time.
Howden Broking partner Jared Timms, responding to those findings, said it is the role of insurance brokers to ensure the full scope of services a client offers is communicated to underwriters and that policy wording is fit for purpose. “Moving strictly based on price can therefore be a risky move,” Timms told Professional Planner, adding that claims handling efficiency with local carriers is another factor worth considering at placement.
ASIC’s renewed PI focus is directly linked to pressure inside the Compensation Scheme of Last Resort (CSLR). The CSLR has paid over $200 million in compensation to more than 1,600 claimants since commencing operations in April 2024, according to CSLR figures published in mid-2026. The scheme’s revised levy estimate for the 2026 financial year is $75.698 million, the majority of which falls on the personal financial advice sub-sector.
Two licence cancellations in ASIC’s September update – Private Wealth Pty Ltd and Australian Fiduciaries Limited – were directly triggered by CSLR payouts following unpaid AFCA determinations. PI insurance is the mechanism intended to prevent those determinations from going unpaid. Where cover is inadequate or claims fall outside policy terms, the CSLR – and the broader industry through levies – absorbs the cost.
That dynamic drove Treasury to open a formal consultation in December 2025 on enhancing PI insurance effectiveness. It closed in February 2026.
Responses from industry bodies to that consultation were sceptical that PI reform could address the CSLR’s structural funding problems. The Financial Advice Association Australia (FAAA) said PI is an important compensation mechanism but that the review “would not make a substantial impact on CSLR costs,” arguing that direct CSLR reform was the more effective path.
The Insurance Council of Australia (ICA), in its February 2026 submission to Treasury, said the industry was concerned that “the current focus may be on expanding the role of PI insurance to cover losses to retail customers arising from high-risk investments, rather than focusing on tackling the underlying structural challenges of the CSLR.” The ICA added that “attempting to transfer the cost of CSLR claims onto PI insurance will be ineffectual in addressing the root causes of the current financial problems of the Scheme, or in preventing consumer losses.”
The Financial Services Council (FSC) supported targeted PI changes but called on Treasury to first establish the evidence base. “Given the risk that reforms may impose additional costs on compliant licensees, however, and the potential impact to the stability of the market, we encourage Treasury to consider an evidenced-based analysis of whether, and how much, PII inadequacy is driving CSLR costs,” the FSC said.
Treasury’s response to the consultation had not been published at the time of writing.
As of September 2025, there were 5,945 financial advice practices in Australia, with an average of 2.6 advisers per practice and more than 96% privately owned, according to the Australian Small Business and Family Enterprise Ombudsman (ASBFEO). PI premiums and CSLR levies already represent a significant share of operating costs for those businesses.
The adviser population has contracted sharply over the past six years – from approximately 26,500 on the Financial Advisers Register in 2019 to around 15,300, per the same ASBFEO submission. A smaller market means fewer PI placements in absolute terms, but also a client base navigating a more complex compliance environment.
Beyond PI, ASIC’s September update flagged that poor superannuation contribution and rollover advice continued to generate enforcement activity. Multiple Financial Services and Credit Panel (FSC) sitting panels were convened during 2025-26 over cases where clients exceeded contribution or transfer balance caps and incurred tax penalties.
Advice errors of this type – cap breaches, poorly considered rollovers, and loss of insurance through a fund transfer – fall within the risk category PI is designed to cover and can generate AFCA complaints and breach reports that compound a licensee’s exposure over time.
