05 Nov 2009

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.
There is a possibility that further amendments will be made to RG 126 to reflect changing market conditions, so watch this space.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.