ASIC has released an updated version of Regulatory Guide 126 Compensation and insurance arrangements for AFS licensees (RG 126).

ASIC has removed the requirement for Australian Financial Services (AFS) licensees to obtain automatic insurance run-off cover as it is not available to AFS licensees in the current insurance market.

The changes mean that:

• until 31 December 2009 – adequate PI insurance is based on what is available in the market now, provided it meets the minimum requirements outlined in Section C of RG 126; and
• from 1 January 2010 – in addition to the above, AFS licensees are required to obtain switching cover that covers the situation where an AFS licensee moves a client from a product that is not on the approved product list to one that is on the approved product list.

The revised version of RG 126 also clarifies that fraud cover is not required for licensees who are sole traders.