The Ministry of Finance and the National Financial Regulatory Administration have jointly issued the Implementation Measures for Professional Liability Insurance of Accounting Firms, marking a significant update to the regulatory framework governing the sector. This revised regulation, which replaces the previous interim measures from 2015, aims to better regulate the development of professional liability insurance, protect the legitimate rights and interests of clients and other interested parties, and enhance the ability of accounting firms to bear professional liability risks.
The new rules are designed to promote the high-quality development of the certified public accountant (CPA) industry by encouraging firms to strengthen their risk compensation mechanisms through insurance. According to the document, which takes effect on January 1, 2027, accounting firms that achieve the required cumulative compensation limits through insured liability coverage may be exempted from further contributions to their professional risk funds, subject to internal governance procedures. Any risk funds already accumulated will continue to be used and handled in accordance with existing laws and internal agreements.
Where the new rules apply
The measures outline a two-tier system for mandatory insurance coverage. For accounting firms engaged in securities services or auditing entities of public interest such as financial enterprises, the minimum cumulative compensation limit for the primary insurance policy is set at the higher of either 1 million yuan multiplied by the number of partners or 100 million yuan. For all other accounting firms, the required limit is the higher of the firm's audit business revenue from the previous year or 500,000 yuan multiplied by the number of partners or shareholders.
Firms may offset these required insurance amounts against the accumulated balance of their professional risk funds as of the end of the prior year. The regulations also specify that insurance companies offering this type of coverage must meet strict eligibility criteria, including a comprehensive solvency ratio of no less than 180% over the most recent three years.
Insurance terms and market-based pricing
Insurance contracts must be established on a voluntary and equal basis, with both parties fairly determining their rights and obligations. The primary policy should clearly define coverage scope, policy period, reasonable retroactive or reporting periods, per-incident and cumulative compensation limits, deductibles, and legal costs. Accounting firms may also purchase additional coverage for scenarios such as loss of accounting records or extension of retroactive periods for first-time policyholders.
Insurance companies are required to adopt a market-oriented, actuarially sound approach to premium pricing. Rates should be determined based on risk factors including the number of CPAs at the firm, years of practice, administrative penalty records, litigation history, and claims experience, as well as underwriting conditions such as coverage scope and limits. The financial regulatory authority will guide industry associations in developing model clauses for these insurance products, which should include definitions of negligence and errors in professional practice.
Claims handling and dispute resolution
During the policy period, accounting firms must promptly notify insurers of any significant increase in risk exposure. When faced with compensation claims from clients or third parties, firms are obligated to take necessary and reasonable measures to mitigate losses. Legal costs and other reasonable expenses incurred in defending against claims arising from insured events will generally be borne by the insurance company, unless otherwise agreed in the contract.
In cases of disputes over policy terms or compensation matters that cannot be resolved through negotiation, either party may seek arbitration as agreed or initiate litigation in court. A professional liability insurance expert committee, comprising representatives from accounting firms, insurance companies, and legal professionals, may be established to provide expert opinions or recommendations to assist judicial authorities and relevant parties in resolving disputes.
Supervision and compliance requirements
Accounting firms must report their insurance policy documents and prior year claims information through the unified regulatory platform for the CPA industry by May 31 each year. Firms utilizing the risk fund offset provision must also submit audited financial reports disclosing their accumulated professional risk fund balances. Any changes or cancellations to insurance contracts must be reported within 10 working days.
Regulatory oversight will be shared between financial authorities at or above the provincial level and insurance regulators, who may conduct joint inspections when necessary. Daily communication mechanisms will be established among regulators, CPA institutes, and insurance industry associations to facilitate data sharing and coordination. Non-compliant accounting firms may face regulatory talks, warning letters, or orders to rectify issues within specified timeframes, while insurers violating pricing or policy management rules will be penalized under applicable insurance laws.
The implementation measures also clarify that insurance products with similar names and substantially equivalent coverage, such as CPA professional liability insurance, fall within the scope of these regulations. Accounting firms are granted a transition period of one year from the effective date to achieve full compliance with the new requirements, at which point the 2015 interim measures will be formally repealed.