The Government announced late on Friday 6 November 2015 further details of the reform package for life insurance advice remuneration.
In June 2015, the Government endorsed the industry's life insurance framework (LIF) reforms of remuneration for retail life insurance advice. The proposals followed theTrowbridge Report, the Financial System Inquiry (FSI) and a report by ASIC into life insurance advice. At that time, the Government undertook to consider the industry's proposals as part of its FSI response which has now been released.
Key changes from the June 2015 proposals include:
- Deferral of the commencement date to 1 July 2016 (previously 1 January 2016)
- The retention (‘clawback’) period has been reduced to two years (previously three years)
- The regime will apply to both general and personal advice and apply to direct sales channels (this was not clear previously)
- Industry has been given the responsibility for widening Approved Product Liststhrough the development of a new industry standard
- ASIC to commence a review of Statements of Advice from the second half of 2016 (previously no date set) and undertake a review of the life insurance reforms by the end of 2018
- The changes will be implemented by amending the Corporations Act to give ASIC the power to create a legislative instrument to set caps on commissions and implement clawback arrangements, with the final form of ASIC's instrument to be determined by ASIC, as the independent regulator. In effect, this gives ASIC a rule making power which is a change for the financial service regime. Previously ASIC has only been able to set rules by making exemptions or modifications of the law. This may be the start of a new approach to making conduct regulation more similar to prudential regulation, where APRA has wide rule making powers.
The Government will develop draft legislation for consultation by the end of 2015, and legislation will be introduced in early 2016. ASIC will commence consultation on the draft legislative instrument on a similar timeframe.
The delay in the start date of the new regime is welcome but it is still a tight timeframe for industry to be ready within less than seven months, particularly when we still do not have details of the grandfathering regime.