ASIC is to be handed greater legislative powers over “the standards of adequacy” for professional indemnity insurance (PII) to protect investors in the superannuation industry.
The regulator will scrutinise the scope of cover, policy exclusions and coverage of representatives.
The proposals form part of the Government’s response to two reports relating to tackling superannuation investment fraud – a Parliamentary Joint Committee on Corporations and Financial Services report on the collapse of Trio Capital, and a report by Richard St. John on Compensation Arrangements for Consumers of Financial Services.
In the latter, St. John was critical of a statutory compensation scheme for consumers of financial services, and a scheme of financial assistance for investors in managed investment schemes. He said it would be inappropriate to have a scheme at this stage.
The reports recommended that more attention is paid to the adequacy of licensees’ financial resources in conjunction with the level of their insurance cover; and that licensees be required to provide ASIC with additional assurance that their PII cover is current and adequate for their business needs.
As well as arming ASIC with greater powers in PII, there will also be a requirement on licensees to report annually to ASIC, as part of their financial reporting requirements, on the adequacy of their PII cover.
These changes come under the reforms to the Corporations Law to strengthen the PII requirements of providers of financial services. The Government will consult on them in due course.
“The Gillard Government takes seriously the issues of misconduct by financial services providers. This response, together with far-reaching reforms such as the Future of Financial Advice and Stronger Super, will improve trust and confidence and enhance investor protection,” said the Minister for Financial Services and Superannuation, Bill Shorten.
The reports also recommended that consideration is given to clearer powers to enforce standards and to sanction licensees who do not comply with the licensing regime with respect to compensation arrangements, powers to deal with phoenix activity, both through licensees establishing new entities or by former directors who re-emerge in the industry as authorised representatives.
It will also leave open for future consideration the need for such a last resort scheme, which will take account of any residual levels of under-compensation after improvements in the industry’s conducts standards have been implemented.