ASIC seeks further powers to provide directions to licensees

Ann-Marie_ColemanThe ASIC Enforcement Review Taskforce (Taskforce) is seeking to expand ASIC’s powers to give directions to financial services and credit licensees (licensees). This follows on from the Taskforce’s earlier recommendation that ASIC’s banning powers be enhanced (see our previous update for more information – available here).

The key recommendations from the Taskforce are as follows:

  1. Where necessary to address or prevent compliance failures, ASIC should have the power to direct licensees regarding the conduct of their business (Directions Power). The legislation would set out the types of directions that ASIC can make.
  2. The Directions Power should be triggered where a licensee has, or will, contravene their licensing requirements (including relevant laws).
  3. ASIC should be able to apply to a court to enforce the direction and take administrative action if the licensee does not comply with the direction.

The Taskforce proposes that an appropriate process for the exercise of the Directions Power would be:

  • ASIC provides a notice to the licensee setting out the intention to make a direction, reasons and a reasonable time period for the licensee to respond;
  • If any response from the licensee does not adequately address ASIC’s concerns, ASIC may then make the direction; and
  • When making the direction, ASIC will set out the reasons and a time frame for complying.

These changes have been proposed as the Taskforce considers that there are shortcomings with respect to ASIC’s existing powers to require licensee’s to adopt internal systems or restrict their activities, including that the time it takes to impose additional conditions can leave financial customers at risk. Currently, ASIC may only make changes to the licence after giving the licensee the opportunity to appear at a private hearing before ASIC and make submissions. ASIC’s current powers also include the ability to apply for an injunction or negotiate an enforceable undertaking with the licensee.

The Taskforce has released a consultation paper on its recommendations and submissions will close on 20 November 2017.

Further information can be found here.

ASIC seeking to enhance banning power

Ann-Marie_ColemanThe ASIC Enforcement Review Taskforce (Taskforce) is seeking to enhance ASIC’s banning powers, to ensure ASIC can take action to ban senior managers from managing financial services business.

The Taskforce has made two key recommendations to increase the banning powers.

1. Whilst ASIC currently has the power to ban a person from providing financial services, the Taskforce has recommended the powers be broadened to allow ASIC to ban a person from:

  • Performing a specific function in a financial services business, including being a senior manager or controller of a financial services business; and/or
  • Performing any function in a financial services business.

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ASIC consults on add-on insurance reforms

ASIC is seeking feedback on proposals to reform the sale of add-on insurance through car dealerships.

Consultation Paper 294 sets out ASIC’s approach and proposed reforms in detail. The reforms would see the introduction of:

  1. A deferred sales model

ASIC proposes to introduce a deferred sales model which would insert a pause in the sales process for add-on insurance products. The proposal is that a period of between 4 to 30 days must elapse before dealers could sell an add-on insurance product to a customer. ASIC has suggested 3 points in time from which the deferral period could commence:

a. When the customer communication is provided;

b. When the agreement to purchase the vehicle and/or arrange financing is finalised and the customer communication has been provided; or

c. When the vehicle has been delivered to the customer and the customer communication has been provided.

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Enforcement report confirms ASIC’s focus for remainder of 2017

Ann-Marie_ColemanOn 22 August 2017, ASIC released a report regarding its enforcement outcomes from the first half of 2017. The report also flags what the focus of ASIC’s enforcement activity will be over the next six months (1 July to 31 December 2017). Consumer credit continues to be a key focus for ASIC, as do obligations of Australian financial services (AFS) licensees.

In the first half of 2017 the majority (59%) of ASIC enforcement in relation to financial services related to credit and 8% of ASIC’s enforcement relating to financial services was connected with dishonest conduct and misleading statements.

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CCI sales process to be overhauled

Ann-Marie_ColemanASIC has recently announced the establishment of a Consumer Credit Insurance (CCI) Working Group, who have been tasked with improving outcomes for CCI customers.

The CCI Working Group will progress a range of reforms. A key reform will be the introduction of a deferred-sales model for CCI sold with credit cards over the phone and in branches. This means that banks will be prohibited from selling a CCI policy until at least four days after the customer has applied for their credit card. The intention of this reform is to reduce the risk that the customer will feel pressured to purchase the CCI policy or purchase a CCI policy that does not meet their needs. The deferred-sales model will not apply to CCI sold online or with homes loans and personal loans (though other measures will be introduced to ensure good consumer outcomes in these areas).

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Policy interpretation comes down to the “natural and ordinary meaning”

A recent judgment from the Victorian Supreme Court’s Insurance List, Guastalegname v Australian Associated Motor Insurers Ltd [2017] VSC 420, provides a succinct summary (and helpful refresher) of the principles to be applied when interpreting a policy of insurance.

The case concerned the interpretation of a soil movement exclusion in a Home Building Insurance policy providing cover for a range of insured events including storm. A storm caused heave of the clay soil beneath the foundation slab of a building. This resulted in lifting of the home’s slab, walls and roof frame, which in turn resulted in cracking and other consequential damage.

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CFMEU says thousands of Australian buildings are clad in non-conforming cladding

The CFMEU has made explosive comments at a recent hearing of the senate inquiry into non-conforming building products. In his testimony earlier this month, Travis Wacey of the CFMEU alleged that thousands of Australian buildings may be clad in non-conforming cladding, which may pose a fire risk.

The contentious use of cladding, which is alleged to be flammable, continues to unfold on the national stage, with the Queensland government on 30 June announcing a wide ranging audit of buildings built between 1994 and 2004. Meanwhile, the Victorian government has launched a taskforce, led by Ted Baillieu and John Thwaites to address the cladding issue throughout Victoria. The taskforce is expected to report in the coming months.

The recent public hearings are part of a wide ranging inquiry into non-conforming building products. The Senate Report is due to be released later this year. DLA Piper will provide a further update once the Senate Report is released.

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.

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