Industry hopeful ‘compensation fund’ levy dropped from new PI regulation
Chris Pearce
There is cautious optimism within the industry that a proposed consumer ‘compensation’ fund levy has been dropped from newly announced legislation mandating financial planners take professional indemnity (PI) insurance from July 1.
Specialist financial planning lawyer Mark Halsey of Halsey Legal Services described as “great news for the industry” that the announcement on Friday of a new regulation “to complement 912B of the Corporations Act” by Parliamentary Secretary to the Treasurer Chris Pearce made no mention of the controversial fund.
“The release speaks only of PI insurance and makes no specific comment about any type of compensation fund based on an additional financial levy on financial planners (licensees),” Halsey told Money Management.
However, he said he would not be “satisfied that a compensation fund is off the agenda” until the contents of the regulation are published [on the] Commonwealth Treasury website”, which is expected to occur by the close of business today.
He is also concerned that even if a compensation fund is not specifically referred to in the regulations, there “may still be an indirect way in which such a fund’s supporters may seek its introduction”.
“The Parliamentary Secretary’s media release indicates that an ASIC [Australian Securities and Investments Commission] guidance note is to be produced and released in draft for public consultation after the release of the regulation.
“A potential concern for the industry is that the Corporations Act 2001 provides that ASIC can seek exemptions or modifications of Part 7.6 of the Corporations Act as it applies to a person (which includes Australian Financial Services licensees).”
The proposal for planners to fund a PI compensation fund as an additional clause to the new PI regulations was made to Treasury at an industry round-table earlier this year.
It was supported by the Financial Industry Complaints Service, consumer advocacy group Choice, litigation funding company IMF and legal firm Slater and Gordon.
Pearce said in his announcement on Friday that the new 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”.
The mandatory PI arrangements required of planners by the new regulation must “either be approved by ASIC or else satisfy the requirements specified in the regulations”, he said.
Australian Financial Services licence holders that are regulated by the Australian Prudential Regulation Authority, such as banks and super funds, will be exempt from the requirement.
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