No need for automatic run-off cover for AFS licensees from 1 January 2010

The Australian Securities and Investments Commission has relieved holders of an Australian Financial Services Licence from the need to hold 12 months of automatic run-off cover as part of their professional indemnity insurance policies. The change will come into effect on 1 January 2010.

The change, which is found in an updated version of "Compensation and insurance arrangements for AFS licensees" (RG 126), is a recognition of the fact that AFS licensees simply cannot get automatic run-off cover in the current market.

This means that

• until 31 December 2009 – PI insurance will be adequate as long as it meets the remaining requirements of RG 126; and
• from 1 January 2010 – in addition to the above, AFS licensees must obtain switching cover that covers the situation where an AFS licensee moves a client from a product that is not on the approved product list to one that is on the approved product list.