NCCP Compensation Arrangements

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It is a requirement that arrangements are in place to compensate clients for loss if you breach your obligations under the National Consumer Credit Protection Act 2009 (National Credit Act). This will generally require adequate Professional Indemnity (PI) insurance cover for the business.

The Australian Securities and Investments Commission (ASIC) have set minimum requirements for the amount of PI insurance cover a credit business should hold. As the credit licensee, you are required to assess the amount of PI insurance you require on a sliding scale:

  • the policy should cover at least $2 million per claim and in the aggregate
  • cover should be approximately equal to actual or expected revenue from credit activities relating to consumers (up to a capped maximum of $20 million)

Credit licensees must retain records of how they determined what amounts were adequate for them.

ASIC also expect that at least the following key features be included for the PI insurance policy to be viewed as adequate:

  • covers loss or damage suffered by consumers because of breaches of obligations under the National Credit Act or licensee obligations
    covers breaches by both credit licensee and its representatives
  • it is available to cover compensation awards made by the EDR schemes (s) to which the credit licensee and its representatives belong

Reasonable efforts must also be made to obtain a minimum of 12 months automatic run-off cover, however ASIC note the difficulty in obtaining this cover so it is not required where it is not reasonably available to the credit licensee. Guidance has been provided in RG 210.30 as to what ASIC believe would be reasonable efforts in this situation.

Key ASIC reference: Regulatory Guide 210 Compensation and insurance arrangements for credit licensees

 

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