ASIC has released a second consultation paper (Consultation Paper 125 Compensation requirements for credit licensees: Further consultation (CP 125)) on its proposals for compensation and professional indemnity (PI) insurance arrangements for credit licensees.

The new consultation paper seeks further specfic feedback on:

• the amount of PI insurance cover that licensees should hold (unless they are exempted from this requirement by the Act or Regulations made under it), and
• the availability of ‘run-off’ cover for credit licensees.

Further consultation was required on these issues due to amendments to the compensation requirements set out in the new exposure draft version of the National Credit Protection Regulations, released for consultation on 20 November 2009. The latest version of the regulations contains a new exemption for credit licensees whose sole business is lending. ASIC has amended its proposals relating to compensation requirements based on this change as well as feedback to the previous consultation paper.

ASIC proposes that:

• all licensees that are not exempt will need to hold PI insurance cover at a set minimum (either $2 million or another amount), depending on the nature of their business
• this cover should include ‘run-off’ cover, which refers to cover for claims made after the insurance policy has ended that have arisen from the acts or omissions of the insured during the period of insurance cover. ASIC is seeking the industry’s feedback on whether this is likely to be available to credit licensees in the current market.

Submissions close on 18 December 2009.