ASIC has completed a proactive review of Australian financial services (AFS) licensees resulting in the cancellation of seven AFS licences.
The review targeted licensees which had not requested a release of a security bond that was required to be lodged with ASIC under a previous licensing regime. ASIC was concerned some licensees may not have requested the return of their security bond as they did not have an adequate professional indemnity insurance policy.
ASIC identified 98 financial advice licensees that still maintained a security bond with ASIC and contacted them to remind them to apply for its release. As part of the conditions of release, each licensee had to provide ASIC with evidence of their professional indemnity insurance arrangements. Even if licensees were not prepared to apply for the return of their security bond, they were still required to provide evidence to ASIC that they had in place necessary insurance arrangements to comply with Corporations Act requirements.
As a result of these enquiries and related actions, ASIC:
– cancelled seven AFS licences
– referred three licensees for further action for failure to have adequate compensation arrangements
– released, or is in the process of releasing, 54 security bonds
– prompted 17 entities to voluntarily cancel their AFS licences as they were no longer operating a financial services business, and
– confirmed the professional indemnity insurance arrangements of the remaining licensees.
Deputy Chairman Peter Kell said, ‘This review has assisted ASIC to remove licensees which are failing to meet their professional indemnity obligations and further, to identify licensees that are no longer active.
‘Licensees must ensure they are up-to-date with and actively complying with all current obligations, otherwise, ASIC will take further regulatory action, including cancellation of the AFS licence’.
Background
Prior to 2002, businesses that provided financial services to retail clients were required to be licensed as a securities dealer by ASIC. As part of those licensing arrangements, securities dealers were required to lodge a security bond of $20,000 with ASIC. The security bond could take the form of either a bank deposit or bank guarantee.
Under the Financial Services Regulation regime, which was introduced in March 2002 with a two- year transition period, the security bond requirement was replaced with the requirement for licensees to have adequate compensation arrangements in accordance with section 912B of the Corporations Act.
ASIC’s Regulatory Guide 126: Compensation and insurance arrangements for AFS Licensees (RG 126) sets out how licensees should comply with this requirement and the minimum requirements that apply to professional indemnity insurance cover.
After the requirement to hold professional indemnity insurance was introduced, licensees were able to apply to ASIC to have their security bond discharged. In order for ASIC to discharge the security bond, licensees must, amongst other things, provide evidence to ASIC that professional indemnity insurance is in place.
