Litigators linked to the Westpoint collapse have warned draft new rules requiring financial planners to have professional indemnity (PI) insurance do not go far enough.
In a submission to Treasury, litigation lawyers IMF questioned the government’s proposed compensation arrangements for the financial services industry in which licensees will choose their own level of insurance cover.
“There is no reason at all to think that the existing problem will not persist if it is left to licensees to determine what is ‘adequate’ insurance cover for their business,” the submission stated.
It rejected the recommendation that the Australian Securities and Investments Commission (ASIC) investigate every insurance arrangement to determine if it is adequate for the licensee.
“That will be an enormous bureaucratic role for ASIC and one which frankly it should not assume.”
IMF also warned that loopholes in many PI policies make them virtually worthless.
“It is the conditions of the policies that made it very difficult for any claim to give assurances to consumers that they were indeed protected,” IMF consumer advocate Denise Brailey said.
IMF is funding investigations worth $30 million against five dealer groups out of 122 that recommended clients invest in the failed property scheme where 4000 investors lost close to $400 million in life savings.
Mandating PI will be a waste of time if there are not sufficient safeguards in the legislation to protect investors, Westpoint Investors Group president Graham Macaulay said.
Treasury has received 30 submissions concerning the draft regulations, a spokesperson said.
