Financial planners have welcomed a regulatory rethink on an automatic run-off professional indemnity cover requirement for Australian financial services (AFS) licensees from January 1.

In an updated version of Regulatory Guide (RG) 126 Compensation and insurance arrangements for AFS licensees, the Australian Securities and Investments Commission (ASIC) has removed the demand for 12 months’ automatic run-off, acknowledging that it is not available in the current hard market.

Financial Planning Association (FPA) CEO Jo-Anne Bloch says the changes will be well received by AFS licensees.

“The changes announced by ASIC are practical, and reflect concerns raised by the FPA in recognition of some of the inherent difficulties posed by RG126 and availability of cover,” Ms Bloch said.

Automatic run-off covers claims made after the insurance policy has ended which have arisen from the acts or omissions of the insured during the period of insurance cover.

Under the ASIC changes, until December 31 adequate PI insurance is based on what is available in the market now, provided it meets prescribed minimum requirements.

From January 1 AFS licensees will also need to obtain switching cover that addresses situations where they move a client from a product not on the approved product list to one that is on the approved list.

The revised version of RG126 also clarifies that fraud cover is not required for licensees who are sole traders.