ASIC Acknowledges PI Insurance Difficulties

The recent landmark fines imposed by the Australian courts against three CFD providers totaling $75million is a timely reminder to ensure that your firm has an adequately structured insurance program that can respond to these losses.

Professional Indemnity (PI) insurance is mandated by ASIC ASIC The Australian Securities and Investments Commission (ASIC) is the prime regulator in Australia for corporate, markets, financial services, and consumer credit. It is empowered under the financial service laws to facilitate, regulate, and enforce Australian financial laws. The Australian Commission was set up and is administered under the Australian Securities and Investment Commission Act of 2001. ASIC was initially the Australian Securities Commission based on the 1989 ASC Act. Initially, the The Australian Securities and Investments Commission (ASIC) is the prime regulator in Australia for corporate, markets, financial services, and consumer credit. It is empowered under the financial service laws to facilitate, regulate, and enforce Australian financial laws. The Australian Commission was set up and is administered under the Australian Securities and Investment Commission Act of 2001. ASIC was initially the Australian Securities Commission based on the 1989 ASC Act. Initially, the Read this Term for those AFSL holders providing services to retail clients. On the recent ASIC Market Liaison Forum, Cathie Armour of ASIC acknowledged that the difficulty of

obtaining PI insurance is an issue they are aware of and are having a look at. ASIC noted that it has not come to any particular conclusions, having for a number of years now reviewed whether this type of insurance is the best way to achieve the goals of the financial system.

A question regarding the potential for use of alternative arrangements, which is outlined in ASIC’s RG126 was met with a qualified response, noting that ASIC considers for the retail OTC derivatives market, it is really important that PI insurance is in place. Likewise, no details were given to attendees about what, for other financial services participants such as Stock Brokers Stock Brokers A stock broker is a company, individual, or entity that is authorized to buy and sell stocks or other financial instruments. Brokers’ main function includes buying and selling orders on a trader’s behalf. Through innovation and a byproduct of us residing with the technology era, more and more traders are beginning to open brokerage accounts with online brokers.In the past, many brokers accrued money through charging a commission on every trade but as competition has strengthened and technology h A stock broker is a company, individual, or entity that is authorized to buy and sell stocks or other financial instruments. Brokers’ main function includes buying and selling orders on a trader’s behalf. Through innovation and a byproduct of us residing with the technology era, more and more traders are beginning to open brokerage accounts with online brokers.In the past, many brokers accrued money through charging a commission on every trade but as competition has strengthened and technology h Read this Term, would qualify as acceptable alternative arrangements.

What Else Am I Missing?

However, the distraction of the PI insurance issues means that many CFD brokers overlook other valuable insurances, especially given the escalating costs and difficulties of the PI insurance, which they are required by law to have, leaving themselves exposed.

To make it simple, we have a look at what is covered by other types of insurance policies, which you may not have considered:

• Directors and Officers’

• Statutory Liability

Directors and Officers

Whilst Directors and Officers (D&O) Liability insurance affords some protection for fines and penalties, broadly speaking, this cover extends only to fines imposed against the individual directors and others classified as officers under the Corporations Act. D&O policies do not generally extend to fines against the entity, which was the case with AGM and the other entities under their AFSL, which were dealing in CFDs.

Additionally, pre-Hayne Royal Commission a number of Professional Indemnity policies included, albeit sub-limited, extensions for fines and penalties against the Insured. However, post-Hayne we have largely seen this cover removed.

Whilst the fines imposed against the three CFD providers does not reflect the average risk for many firms, it is vitally important for AFSL holders to manage their exposure to regulatory risk – a good way to do this is via a stand-alone Statutory Liability policy.

Statutory Liability

A Statutory Liability policy can provide cover for the company, senior management and employees for allegations of wrongful breaches of key legislation in the course of providing professional services and may extend to supplementary legal expenses.

We encourage you to review your current insurance program with your insurance broker so that you are comfortable with your inclusions and exclusions.

Ben Glover is the Founder and Managing Director of Insight Risk Advisers.