Regulatory updates

UPCOMING REGULATORY CHANGES

October is fast approaching and with it a raft of sweeping regulatory changes that all brokers need to be aware of. These changes will affect almost every broker, so it is critical that NIBA members have a thorough understanding of the changes and the impact they will have on their business.

Reference checking and information

sharing: The new provisions will require AFS licence holders to comply with new reference checking and information sharing protocols which will shortly be released by ASIC. These requirements will apply to authorised representatives of life risk brokers, and do not apply to representatives giving advice only in relation to general insurance products. The new rules take effect on 1 October.

Hawking of financial products:

Complex new provisions relating to the “hawking” of insurance products will take effect on 5 October. The provisions do not apply when an insurance broker is giving personal advice to a retail client, but they will apply to insurance brokers operating under a general advice model.

The provisions will prevent the unsolicited marketing and sale of financial products to retail clients. The definitions and concepts are difficult and complex; NIBA is currently seeking clarity from Treasury and will provide further information to members in relation to these changes.

Duty to take reasonable care not to make a misrepresentation:

These reforms relate to a newly defined category of “consumer insurance contracts”. They apply to insurance obtained wholly or predominantly for the personal, domestic, or household purposes of the insured.

Where the new definition applies, the insured only has a duty to take reasonable care not to make a misrepresentation to the insurer before entering the consumer insurance contract. The changes relate to insurance contracts entered into on or after 5 October.

For non-consumer insurance contracts, the existing provisions in sections 21 and 22 of the Insurance Contracts Act (duty of disclosure obligations and misrepresentation provisions) apply. NIBA will provide more information on these reforms to members.

Deferred sales model for add-on

insurance products: These reforms implement an industry-wide deferred sales model for add-on insurance products. The legislation introduces a complex array of obligations which defer the insurance transaction for a period of four days.

The legislation applies to any insurance product sold incidentally to a primary good or service e.g., insurance sold in conjunction with the rental of a motor vehicle, travel insurance purchased after the purchase of a travel product. The reforms do not apply to comprehensive motor insurance, or products recommended by financial advisers in a very limited personal advice situation.

NIBA is currently liaising with Treasury to seek exemptions for a number of broker products where the immediate supply of cover provides genuine protection for consumers.

The legislation is due to take effect on 5 October.

ASIC Regulatory Guide 271 – Internal Dispute Resolution:

It is a condition of every AFS licence that the licence holder have a system for managing and resolving complaints and disputes, preferably before they are elevated to AFCA.

ASIC has issued a new regulatory guide, RG 271 Internal dispute resolution, setting out their dispute resolution standards and requirements. A number of the standards and requirements set out in the RG are enforceable, so it is critical that members are aware of the new obligations.

NIBA has previously provided information to its members on this issue, which can also be accessed via the Media Hub on the new NIBA website under “Members only content”.

The requirements only apply to complaints received on or after 5 October. For complaints received by firms before 5 October 2021, Regulatory Guide 165 Licensing: Internal and external dispute resolution applies.

New breach reporting obligations: These changes strengthen the breach reporting regime for financial services licensees, by replacing the current reporting obligations.

Under the new licensees, licensees will be required to notify ASIC within 30 days after the AFS Licensee first knows, or is reckless with respect to whether, there are reasonable grounds to believe a reportable situation has arisen.

A reportable situation arises when: • the licensee or its representative has breached/or is likely to have breached a core obligation and the breach is significant; • the licensee has commenced an investigation into whether the licensee or representative has breached a core obligation and the breach is significant and the investigation has continued for more than 30 days; or • in the course of providing a financial service, the AFS licensee or representative has engaged in conduct constituting gross negligence; or committed serious fraud.

The test for signifi cance has also changed. A breach of a core obligation is deemed to be signifi cant if: 1. the provision breached is an o ence that may involve imprisonment (3+ months for dishonesty o ences, 12+ months for others); 2. the provision breached is a civil penalty provision, or s 1041H(1) of the Corporations Act or s12DA(1) of the ASIC Act (misleading or deceptive conduct in relation to a fi nancial product or service); or 3. the breach results, or is likely to result, in material loss or damage to clients or members.

The legislation also introduces new obligations on AFS Licensees to investigate reportable situations that may cause loss or damage to retail clients who received personal advice, to notify those potentially a ected clients, and to pay compensation to a ected clients within 30 days of completing the investigation.

Members will need to assess their breach reporting practices in light of the new regime and, if necessary, seek advice on how to build practices into their business that comply with the new regimes.

ASIC has released draft Regulatory Guide 78, to help members understand and comply with the new changes. The changes are scheduled to take e ect on 1 October.

New FSG content – Disclosure of lack

of independence: AFSL holders and their Authorised Representatives (ARs) need to develop notice for inclusion in FSG/SFSG before 1 July 2021.

New Corporations Act fi nancial service of “claims handling and settling

service”: Persons providing this new fi nancial service need to determine if they require a licence and if so, apply for authorisation (well before 30 June 2021 if they want to access transition period) and implement procedures to comply with new requirements. Brokers won’t usually be caught if only acting on behalf of customer in providing these new services. Will be if acting for insurer, subject to certain exemptions.

Change to Insurance Contracts Act pre contractual duty of disclosure and misrepresentation

regimes: This creates new regime for “consumer insurance contracts” and applies the existing duty of disclosure and misrepresentation to other contracts. Insurers and agents need to identify what contracts are caught and amend procedures and documents. Insurance brokers need to identify how they will assist clients. of disclosure and misrepresentation to other contracts. Insurers and agents need to identify what contracts are caught and amend procedures and documents. Insurance brokers need to identify how they will assist clients.

New Code of Practice Regime and enforceable General Insurance Code of Practice provisions under Corporations

Act: Creates a new framework under which codes of conduct may be developed by industry and approved by ASIC or developed and mandated by Government through regulations. ASIC can also designate enforceable code provisions a breach of which can attract penalties etc. ASIC has not yet done so. Nothing until ASIC identifi es relevant provisions.

New add on insurance caps on

commissions in ASIC Act: The changes apply to defi ned add-on risk products (e.g. tyre and rim insurance, mechanical breakdown insurance and consumer credit insurance and non-insurance risk transfer products) provided to consumers (as defi ned) and allow ASIC to make determinations relevant to caps on commission that may be paid or supplied for the product in relation to the: sale; provision of credit connected with; or provision of a warranty, in connection with the sale or long term lease of a motor vehicle. Nothing to do until ASIC identifi es relevant proposals.

Australian Law Reform Commission review of the Legislative Framework for Corporations and Financial

Services Regulation: Consolidated fi nal report due 30 November 2023, and interim reports issued in stages. NIBA is currently consulting on this.

Government review of measures to

improve the quality of advice: The Government has proposed, by 30 June 2022 (but no later than 31 December 2022) to conduct a review in consultation with ASIC of the e ectiveness of measures that have been implemented by the Government, regulators and fi nancial services entities to improve the quality of fi nancial advice and the current general insurance confl icted remuneration exemptions. NIBA is currently consulting on this. 

“ASIC has issued a new regulatory guide, RG 271 Internal dispute resolution, setting out their dispute resolution standards and requirements. A number of the standards and requirements set out in the RG are enforceable, so it is critical that members are aware of the new obligations.”