Law firm Maurice Blackburn has said that stringent professional indemnity insurance requirements are key to protecting victims of poor financial advice.
The firm said that stricter insurance requirements are needed alongside greater regulatory oversight and a scheme of last resort in their latest submission to the Government’s Ramsey Review.
The Review, which looks at the financial system’s external dispute resolution and complaints framework, was launched over a year ago and Maurice Blackburn principal Josh Mennen said that insurance should play an important role.
“When a financial service provider becomes insolvent, they cease to remain a member of the relevant external dispute resolution scheme, denying those consumers affected access to an important mechanism for recovering their losses,” Mennen said.
“This legal ‘black hole’ is exacerbated by the lack of regulatory monitoring to ensure that financial service providers have adequate professional indemnity insurance in place - that’s why we have called for greater regulatory oversight from
ASIC and proper accountability for professional indemnity insurers who have been let off the hook in many instances.”
Mennen said that consumers should be able to take direct action against a negligent party’s professional indemnity insurer through external dispute resolution schemes.
“When a claim is brought against a financial adviser who has responsive professional indemnity insurance, the insurer takes control of the defence and ultimately pays the claim or settlement, so why should the insurer be let off because the wrongdoer has ceased to operate? It shouldn’t.”
Meenen noted that the firm has also called for external dispute resolution schemes to include registers of relevant past and current insurers for providers of financial services in a bid to help claimants access compensation more easily.
The registers would also lessen the burden on the industry-funded scheme of last resort which would keep more money available to compensate victims.
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