In a move likely to be welcomed by the general insurance industry, ASIC has proposed to maintain the relief provided for distributors of general insurance products.
A few short years after the introduction of the new financial services regime in Chapter 7 of the Corporations Act 2001 (Cth), ASIC began to appreciate the special nature of general insurance and the need for more streamlined and simplified distribution. As part of this recognition, relief was provided exempting general insurance distributors from the need to either hold an AFSL or be appointed as an authorised representative of an AFSL holder.
With this relief due to expire on 1 April next year, ASIC has fortunately released Consultation Paper 230 – Remaking ASIC class orders on banking and insurance which proposes to continue the relief.
The consultation paper relates to a number of class orders but of particular interest to insurers is class order[CO 05/1070] in relation to general insurance distributors. Dating back to 2005, this instrument modified Part 7.6 of the Corporations Act to allow distributors to arrange for the issue of general insurance without being the authorised representative of the AFSL holder on whose behalf they act.
This simplified the distribution of general insurance products and also avoided various issues associated with cross-endorsement where a party wished to be the authorised representative of multiple AFSL holders. The arrangements put in place ensured that the AFSL holder took responsibility for the conduct of the distributor.
ASIC proposes to maintain the relief in a new legislative instrument, reflecting the current drafting without any significant changes. The minor changes proposed are to:
- combine [CO O4/909] and [CO O5/1070] into 1 instrument;
- increase the ways in which representatives can be appointed to reflect subsequent changes to the Corporations Act;
- remove a condition in [CO O4/909] requiring licensees to advise ASIC that they intend to rely on the instrument (to avoid the duplication of administrative requirements that have already been imposed);
- remove a redundant modification of section 917A of the Corporations Act;
- use consistent language when referring to:
- the licensees that can rely on the relief currently provided;
- the persons that those licensees may appoint as distributors; and
- the financial services the distributors may provide; and
- modernise the language and drafting of the instrument.
ASIC is of the view that the current relief is operating effectively and efficiently. ASIC is not aware of any issues with the current operation of the relief. The relief avoids unnecessary compliance costs while preserving the consumer protections that would apply if the distributors were authorised representatives.
This is good news for insurers and their distributors as it will mean no changes will be required to existing arrangements, avoiding additional costs and the need to appoint existing distributors as authorised representatives.
ASIC is also proposing the repeal of class order [CO O6/623] – Relief for certain general insurers from s981B account requirements. This class order exempted an insurer from the client money handling provisions in Part 7.8 of the Corporations Act if that insurer complied with the money handling obligations under section 1017E. However, ASIC is of the view that such relief is not necessary as in their view the exemption in section 981A(2)(c) extends to money collected by insurers that act as agents of the issuing insurer. This exemption already applies to the money if it is treated in accordance with section 1017E.
Accordingly, ASIC considers that the class order is no longer a useful part of the regulatory framework as the class order was only ever made for the avoidance of doubt and that doubt has now been removed. The repeal of the class order should have no impact on the current procedures of insurers.
In general, the consultation paper affirms ASIC’s commitment to facilitating streamlined and innovative distribution practices.
Interested stakeholders have until 7 July 2015 to provide their comments to ASIC on the proposals.