Legal firm Maurice Blackburn has called for Australian financial services licence holders to face significant penalties for wrongdoing and be forced to abide by an ongoing statutory duty of disclosure as part of its submission to the federal government's compensation system review.
Maurice Blackburn said ASIC's discretionary power to suspend or cancel a licence was not enough of a deterrent to prevent licensees from having inadequate insurance.
"A more effective deterrent would be a non-discretionary, substantial penalty. A substantial penalty would be not less than $1 million or 15 per cent of the previous year's revenue," the firm's submission said.
It said the same rules should be placed on licensees as were mandatory for Australia's stockbroking sector.
"We note that a stockbroker must advise ASIC within 10 business days of the renewal of its insurance policy, including the amount and nature of cover, and to advise ASIC immediately of any notification to its insurer of a claim, and that failure to meet these obligations attracts a maximum penalty of $20,000," it said.
"The same obligations should apply to licensees, accompanied by a substantial penalty."
The firm also said it believed licensees should be subject to an ongoing statutory duty of disclosure in circumstances where there was a real risk of there being no insurance or assets to meet claims.
"There should be a presumption that licensees have either adequate insurance or the means to meet all claims made against it, and if this is not the case, licensees should be required to notify claimants in writing as soon as a claim is received," it said.
The current minimum of $2 million for any one claim was "grossly inadequate", it said.
"The minimum should be not less than $5 million for any one claim and there should be no limits in the aggregate, or the Commonwealth should guarantee any amount which exceeds the limit," it said.
"If it is necessary to adjust the minimum limit depending on the size of the licensee's business, then the adjustment should not be made according to the business's revenue, but instead the amount of funds under management by that business."
