Section 6 – farewell (and good riddance!)

In December 2016 we posted on the NSW Law Reform Commission’s recommendation to replace section 6 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW).  Six months later, we can now confirm that section 6 is (finally) dead and herald the new era of the Civil Liability (Third Party Claims Against Insurers) Act 2017 (NSW) (Act).  The new Act is now live (from 1 June 2017) and is a welcome clarification of the confusion and ambiguity caused by section 6.

The Act permits (at the Court’s discretion) a claimant (ie a liquidator) to sue an insurer of a proposed defendant directly, without needing to assert a statutory (section 6) charge over insurance proceeds.  Recovery under the Act is limited to the insurer’s liability (under a relevant policy) for the defendant’s liability to the claimant.  This is important, as it means defence costs are excluded from the reach of the provision (unlike the section 6 regime).  Leave can only be given if the insurer has a liability under the contract of insurance  – if an insurer can establish there is no indemnifiable claim, leave must be refused.

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Breach reporting obligation repealed for group purchasing bodies

Ann-Marie_ColemanGroup purchasing bodies (GPBs) are no longer required to report breaches of the conditions of relief provided by ASIC Class Order 08/1 (Class Order). The obligation to comply with the breach reporting condition in the Class Order was due to commence from 30 June 2017 but has been repealed.

GPBs are persons who arrange or hold cover under risk management products for others but neither issue risk management products (except for interests in a risk management scheme) nor provide any financial product advice (except as a result of providing certain general information). The Class Order provides conditional relief to a limited class of GPBs that organise insurance on a non-commercial basis. One of these conditions was a requirement to report to ASIC breaches of the other conditions.

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Call for extension of conflicted remuneration ban

Ann-Marie_ColemanThe ban on conflicted remuneration should extend to the general insurance industry and to all life policies, regardless of whether the policy was obtained through the superannuation system or not, according to Industry Super Australia (ISA) and the Australian Institute of Superannuation Trustees (AIST).

In May this year the Government sought stakeholder submissions on the five measures enacted in 2013 as part of the Future of Finance Advice (FoFA) reforms. One of these reforms was the ban on conflicted remuneration, including up-front and tailing commissions and like payments, for both individual and group risk insurance within superannuation. This reform sought to address the link between conflicted remuneration and quality of the advice.

Submissions by ISA and AIST argue that the “distinction between insurance purchased within or outside superannuation is arbitrary and irrelevant to the need for regulation across all life insurance.” It is argued that, by failing to extend the remuneration to all life insurance and general insurance, the industry has accepted that it will tolerate the provision of poor advice. The submissions also reference the 2014 ASIC report into retail life insurance which found that there was a clear link showing that commission affects the quality of advice consumers receive, with 96% of poor advice given by advisers paid under commission models. ISA and AIST submit that the Government should extend the ban “to ensure the availability, accessibility and affordability of high quality financial advice.”

Whether the Government adopts the approach suggested by the ISA and AIST, and produces a uniform approach regarding conflicted remuneration, remains to be seen.

The Government’s consultation paper can be accessed here and the submissions by ISA and AIST can be accessed here.

CPA’s woes worsen – with members’ limited liability at risk

As heads continue to roll at the CPA, there is more bad news afoot for CPA members.

On 7 October 2017, all public practitioner members of the CPA will lose the protection of their Professional Standards Scheme. This means that they will no longer have the benefit of liability caps, as provided for under the scheme, and may leave members with uninsured exposure to claims which exceed current levels of insurance.

The Professional Standards Council, which approves such schemes, has confirmed that for “reasons of concern about conflicts of interest arising from the establishment and structure of CPA Australia Advice” they will not renew the CPA’s current scheme, which expires nationally on 7 October 2017.

The PSC has received a new application from CPA Australia, but it is too late to guarantee that there won’t be a lapse in the scheme’s continuity for CPA members.

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ASIC industry funding model introduced

Ann-Marie_ColemanLate last year the Government announced it would introduce an industry funding model for ASIC (our previous update on this can be found here). The ASIC Supervisory Cost Recovery Levy Bill 2017 and related bills have now passed. Effective from 1 July 2017, ASIC’s regulatory costs will be recovered through annual levies from all industry sectors regulated by ASIC.

The amount of the levy will be worked out in accordance with regulations. Whilst the relevant regulations have not yet been passed, the draft regulations apply either a flat or a graduated levy to entities in each industry subsector regulated by ASIC. The draft regulations:

  • establish the criteria for determining the subsectors an entity is a part of;
  • set out the formulas and metrics to be used for calculating the amount of levy payable for entities in each subsector;
  • provide for ASIC to make an annual legislative instrument specifying information about each of the regulated industry subsectors that must be used in the formulas; and
  • prescribe certain amounts that should not be included as part of ASIC’s regulatory costs.

The regulations are expected to be passed shortly, ahead of the commencement of the model on 1 July 2017.

Further information can be found here.

ASIC sets commission caps and clawback amounts for life insurance

Ann-Marie_ColemanIn February this year the Corporations Amendment (Life Insurance Remuneration Arrangements) Act 2017 (the Act) was passed by Parliament, followed by the associated regulations. Our updates on these can be found here and here. The Act removed the exemption from the ban on conflicted remuneration for commissions paid in relation to certain life insurance products. The Act also enabled the Australian Securities and Investments Commission (ASIC) to allow commissions to be paid if requirements around commission caps (benefit ratio requirements) and clawbacks are met.

ASIC has now made ASIC Corporations (Life Insurance Commissions) Instrument 2017/510 (ASIC Instrument) which allows commissions to be paid for the sale of life insurance, but sets limits on the commissions and contains clawback requirements if the policy is cancelled within its first two years. The ASIC Instrument will commence on 1 January 2018. Read the rest of this entry »

New laws place real estate agents under the hammer

natasha_stojanovichOn 1 May, amendments to the Estate Agents Act 1980 (Vic) took effect in Victoria. The new legislation is designed to address the allegedly widespread practice of underquoting in the Victorian real estate industry. The new laws strengthen existing prohibitions on underquoting, and apply only to residential properties.

The legislation requires, amongst other things:

  • The estimated selling price to be reasonable, and within a 10% range, i.e. $500,000 to $550,000
  • The estimated selling price not to be less than the seller’s asking price, or a price in a written offer which the seller has rejected
  • Agents to change the estimated selling price if it is no longer reasonable

Agents who do not comply with the new laws may face fines in excess of $30,000. For more serious offences, agents also risk losing any commission received for the sale of a property. The new laws only apply to sales authorities signed on or after 1 May 2017.

We expect to see more real estate agents being prosecuted in Victoria as a result of the changes and will keep a close eye on any increase in notifications/claims for future updates.

Life insurance remuneration regulations passed

Sophie DevittFollowing on from our previous update regarding the new life insurance remuneration arrangements, the Corporations Amendment (Life Insurance Remuneration Arrangements) Regulations 2017 (Regulations) have now been passed.

The Regulations will take effect from 1 January 2018, the same date as the Corporations Amendment (Life Insurance Remuneration Arrangements) Act 2017 (Act).

The Act removed the exemption for life risk insurance products whereby a benefit is not conflicted remuneration if no financial advice in relation to the product has been given to the person in the last 12 months. This was purposely done to allow the Regulations to prescribe circumstances in which benefits in relation to life insurance are conflicted remuneration even where the circumstances do not involve the provision of financial product advice.

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ASIC Report into financial advisers

0chris_LisicaAs part of its Wealth Management Project, Australian Securities and Investments Commission (ASIC) has released its report into how effectively Australia’s largest financial institutions oversee their financial advisers. The report is based on a 20-month project instigated by information received by ASIC about non-compliant advice, as well as public concerns about wider problems in large advice firms.

The full report is structured in three key phases and can be accessed here.

Phase 1: How the Financial Institutions Identified and Dealt with Non-Compliant Conduct by Advisers

ASIC found between 1 January 2009 and 30 June 2015:

  • financial institutions relied heavily on information from adviser audits and customer complaints to identify non-compliance
  • there were significant delays in reporting non-compliant conduct by advisers to ASIC. In fact, almost half of non-compliant advisers had not been notified to ASIC until AFS licensees did so as part of this project.

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Senate Inquiry into ‘non-confirming’ building products is wrapping up

natasha_stojanovichOn 23 June 2015, the Senate commenced a wide-ranging an inquiry into the use of ‘non-conforming’ building products (being products and materials that do not meet required standards). The inquiry was launched following a 2014 fire in a Victorian apartment complex involving the use of aluminium composite panelling. The due date for reporting has been extended several times, and the report is now due to be released on 25 May 2017. The long awaited and much anticipated report will address:

  1. The economic impact of non-conforming building products on the Australian building and construction industry
  2. The impact of non-conforming building products on:
  • industry supply chains
  • workplace safety
  • costs passed on to customers, including any insurance costs
  • the quality of Australian buildings.
  1. Potential regulatory reform to ensure that building products conform to Australian standards, including a consideration of:
  • enforcement of existing regulations
  • independent assessment systems
  • screening of imported products
  • penalties for use of non-conforming building products.
  1. The illegal importation of products containing asbestos.

We will be monitoring developments with interest, as the report is likely to have wide ranging implications for the building and construction industry. We will be reporting further once the report is released on 25 May 2017.

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