10-70AD Guidance for credit licensees about compensation and insurance obligations
Tuesday 30 March 2010
ASIC today released regulatory guidance for credit licensees and insurers about the compensation and professional indemnity (PI) insurance obligations under the National Consumer Credit Protection Act (National Credit Act).
Regulatory Guide 210 Compensation and insurance arrangements for credit licensees (RG 210) sets out how credit licensees can meet their obligation to have adequate compensation arrangements.
Licensees must have arrangements in place for compensating their clients for any loss they suffer if the licensee or its representatives breach their obligations. The primary way to comply with this obligation is to have PI insurance.
ASIC Commissioner, Dr Peter Boxall said RG210 had been developed to help people understand how ASIC will be administering these requirements and to outline what will be ASIC’s expectations in relation to compensation and PI insurance.
‘ASIC will administer the compensation requirements with the objective of reducing the risk that credit licensees cannot meet claims for compensation, due to insufficient financial resources. Whether a PI insurance policy for credit licensees is adequate depends on the amount and scope of cover and the relevant terms and conditions of that policy.’
RG 210 provides ASIC’s view on what is ‘adequate’ PI insurance for the purposes of the National Credit Act, including the level and scope of cover that should be provided by a PI insurance policy.
Dr Boxall said the guidance had been developed after extensive consultation with industry participants, industry organisations and consumer representatives. ‘Industry and consumer stakeholders have made significant contributions to this guidance, and we thank them for their time and input into the consultation process.’
‘We will continue to monitor the implementation of the new requirements in order to achieve a smooth transition for industry.’
The National Credit Act requires people who currently engage in credit activities to apply for an Australian Credit Licence between 1 July and 30 December 2010. This follows an initial registration period (1 April – 30 June 2010). The compensation and PI insurance obligations for a licensee commence from the date the licence is issued.
The National Credit Regulations exempt certain categories of credit licensees from the requirement to hold PI insurance, including credit licensees that are regulated by APRA, and licensees whose sole business is lending and that do not undertake any non-lending credit activities (with the exception of credit services provided in relation to their own loans and credit leases). These exempt licensees are able to determine whether to meet their obligation to have in place adequate compensation arrangements by PI insurance or some other means.