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PI to be compulsory

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By Madeleine Collins
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2 minute read

Professional indemnity insurance will soon be compulsory for planners.

Financial planners will soon be required by law to take out professional indemnity (PI) insurance. Announcing the long-awaited change to the Corporations Act on Friday, Parliamentary Secretary to the Treasurer Chris Pearce said the regulation will give more protection to consumers.

"The regulation will reduce the possibility that affected licensees will not have adequate cover in place to compensate retail clients in the event of a successful claim," Pearce said.

The change is expected to be made by July 1 followed by a transition period.

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The new PI arrangements must either be approved by ASIC or else satisfy the requirements specified in the regulations. The regulator will release a draft guidance note for public comment by July 1.

Australian Financial Services License holders that are regulated by the Australian Prudential Regulation Authority, such as banks and super funds, will be exempt from the requirement.

The collapse of the Westpoint property group in 2005 drove the Federal Government to use PI to beef up consumer compensation mechanisms.

Many financial planners who recommended Westpoint products were found to have inadequate or non-existent PI cover.

Originally planned to take effect 12 months ago, the changes were delayed twice because industry groups were locked in dispute about the best way to tackle the problem.

An ASIC report last year found that only around 60 per cent of licensees hold PI cover.


 

PI to be compulsory
Professional indemnity insurance will soon be compulsory for planners.
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