As a credit licensee, you will need to have arrangements in place for compensating your clients for loss they suffer if you breach your obligations under the National Credit Act.
For most applicants, the way to comply with this obligation is to have adequate professional indemnity (PI) insurance cover.
Some applicants (i.e. general insurance companies, life insurance companies and ADIs) are exempt from the obligation to hold PI insurance cover. Related bodies corporate of these entities may also be exempt if they hold a guarantee that has been approved by ASIC.
Note: See reg 12(3) of the National Credit Regulations for details of licensees that are exempt from the requirement to hold PI insurance cover.
In addition, if you will (if granted a licence) be a licensee who is authorised to engage in credit activities as a credit provider or lessor and will only provide credit services in relation to credit contracts or consumer leases for which the licensee is the credit provider or lessor, you will be exempt from the obligation to hold PI insurance cover.
Note: See reg 12(3)(c) and (d) of the National Credit Regulations.
For information on our approach to compensation and insurance arrangements, including what features your PI insurance cover must have to be adequate, see RG 210.
You do not need to have your compensation arrangements in place when you apply for a credit licence. However, we cannot grant you a credit licence until you confirm that you have adequate compensation arrangements in place. You should therefore start to organise your PI insurance cover, or apply to us for approval of an alternative arrangement or a guarantee, before making your application. It can take several weeks, or longer, to obtain PI insurance cover, or for us to assess whether your alternative compensation arrangements or guarantee are adequate.
Professional indemnity insurance
If you indicate that you have PI insurance cover that complies with our policy in RG 210, you will continue to the next part of the application.
You do not need to provide any further details about your PI insurance cover in the online application. If we consider that you should be granted a credit licence, we will give you a decision in principle and a draft of the credit licence that we propose to grant.
However, before we can make a final decision to grant the credit licence, you will be asked to:
answer a questionnaire that asks for information about the insurer, the type and level of your cover, the scope of the cover and whether it has the features set out in our guidance on compensation and insurance arrangements for credit licensee; and
provide a copy of the Certificate of Currency for your PI insurance policy.
If you indicate that you do not have PI insurance cover that complies with ASIC’s policy, you will be asked whether you have a process to ensure that you will have such insurance cover when your credit licence takes effect. If you answer ‘yes’, you will not be asked any further questions about your compensation arrangements in the online application. However, you will need to provide the information described in RG 204.265 before we can make a final decision to grant a credit licence.
Exempt licensees and alternative compensation arrangements
Exempt licensees that do not require ASIC approval
If you indicate that you are an exempt licensee because you are a general insurance company, life insurance company or an ADI, you will not be asked for any more information about your compensation arrangements either in your online application or before your credit licence is issued.
If you indicate that you will only engage in credit activities as a credit provider, you will not be asked for any more information in your online application about your compensation arrangements.
Exempt licensees that require ASIC approval
If you select either ‘ASIC approved guarantee’ or ‘ASIC approved alternative arrangements’ as the reason for not having PI insurance cover, you will be asked in your online application whether ASIC’s approval has been obtained. You do not need to have obtained our approval before you apply for a credit licence. However, your licence will not be granted until either we have approved the alternative arrangements or guarantee, or you have obtained adequate PI insurance cover.
Obtaining approval or a guarantee
If you want to apply for ASIC approval of alternative arrangements, or a guarantee from a related body corporate that is a general insurance company, life insurance company or ADI, you will need to apply in writing to firstname.lastname@example.org.
In deciding whether to approve alternative arrangements, we will consider the same factors used to assess the adequacy of PI insurance.
This information comes from Regulatory Guide 204.