The introduction of mandatory professional indemnity (PI) insurance for holders of financial services licences won’t prevent corporate collapses or root out rogue elements in the industry, according to the Financial Planning Association (FPA).

From July 1, practitioners across the financial services industry must hold PI cover under changes to the Corporations Act announced last month by Parliamentary Secretary to the Treasurer Chris Pearce.

The changes extend existing rules whereby practitioners must be a member of an external conflict resolution scheme such as the Financial Industry Complaints Service (FICS).

FICS is also considering increasing the monetary limit on cases it can hear from $100,000 to $280,000, following concerns that the ceiling is too low.

FPA CEO Jo-Anne Bloch says mandatory PI cover and the extension of the FICS monetary limit will do little to prevent a repeat of the Westpoint, ACR and Fincorp collapses.

“Increasing PI insurance requirements only protects the insured; it does not solve the problems in the market,” Ms Bloch said.

“Further, there is no evidence to suggest FPA members have been unable to meet compensation payments handed down by FICS under current arrangements, outside extraordinary events.”

Ms Bloch says both proposals could prompt a rise in PI premiums, hurting smaller operators.

“We need a model that supports equally the complainants and those who are the subject of a complaint. There needs to be a more robust, transparent mechanism in the way FICS deals with complaints.”