ASIC has released Regulatory Guide 210 Compensation and insurance arrangements for credit licensees (RG 210) which sets out how credit licensees can comply with the Australian Credit Licence adequate compensation arrangements requirement.

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 Professional Indemnity insurance.

RG 210 provides ASIC’s view on what is ‘adequate’ PI insurance for the purposes of the National Consumer Credit Protection Act, including the level and scope of cover that should be provided by a PI insurance policy.

National Credit Regulation 12 exempts certain categories of credit licensees from the requirement to hold PI insurance, including credit licensees that are insurers and ADI’s 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.