One of the key elements of professional indemnity insurance coverage is the use of an approved products list ("APL").  Most PI insurance policies will only cover a licensee in respect of products that were included on the licensee's APL at the time the product was recommended by the licensee (or representative), and acquired by the client.  This can make the claims process extremely difficult for licensees with no effective form of version control for their APL.  We have seen several examples of this in the last few years.

Claims against a licensee are often made in respect of financial services that were provided many years prior to the claim being made (even this year we have seen an attempted claim in respect of Westpoint).  If a licensee's professional indemnity insurance policy only provides indemnity in respect of financial products which were on the APL at the relevant time, the insurer will request confirmation that the products the subject of the claim were on the licensee's APL at the time the advice was provided to the claimant. 

At a minimum, licensees should be able to locate the correct version of their APL from any point in time over the preceding 7 years.  For example, if a claim is made in respect of advice that was given in June 2009, you need to be able to locate the version of your APL that was in place in June 2009. 

Examples of problems we have seen include:

Some licensees have elaborate documented compliance policies and procedures related to internal/external research and the development of APLs.  In some cases these are acquired "off-the-shelf" from compliance consulting groups.  Licensees have adopted or acquired such procedures for the very best of intentions – such as to demonstrate superior operational standards.  However, if these are not strictly followed they can come to haunt the licensee.  If the AFS licensee's licence proofs provided to ASIC at the time of obtaining the licence, or the licensee's policies and procedures current at the relevant time, set out certain procedures to be followed in order to approve the product, proof that those procedures were in fact followed will also be essential.

Required Action

Check your PI policy, and see what is required for a product to be classified as approved.  Ensure those requirements have been satisfied, and that you have evidence to support this.  Ensure that you have a system to maintain this evidence for at least 7 years.  Be especially careful at the time of changing insurance policies to make sure that any new requirements are incorporated within your internal procedures.