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Regulatory Compliance UpdateRegulatory Compliance Update
Mikaela Reynoldson
Moray & Agnew Lawyers

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Outline of topicsOutline of topics

National Consumer Credit Regulation

Update compensation requirements AFS
licensees

Refund of stamp duty

Financial Claims Scheme

Double insurance

Insurance Contracts Act amendments

APRA broker data collection

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National Consumer Protection Act 2009National Consumer Protection Act 2009

December 2009 - Received Royal Assent

1 July 2010 – Provisions of Act commence

Purpose of the Regime

Imposes a licensing regime administered by
ASIC.

Imposes responsible lending conduct
requirements for licensees.

Improves ASIC’s enforcement powers.

Improves consumer protection through
dispute resolution mechanisms, court
arrangements and other remedies.

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Does the regime apply to insurance brokers?Does the regime apply to insurance brokers?

Caught if you provide a credit assistance to a
consumer or act as an intermediary.

As a broker, the vital element is that your role,
wholly or partially, is to secure a credit contract
for a consumer with a credit provider (eg a
premium funder)

Premium funding will fall within the operation of
the Credit Act if it meets the following elements:
(i) provided wholly or predominantly for personal, domestic or
household purposes; and
(ii) the consumer must be a natural person or strata corporation

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What is “credit” and what is “credit assistance”?What is “credit” and what is “credit assistance”?

Definition of “Credit” – s3 of the Act

Two elements:
(i) payment of a debt owed by a consumer (such as a borrower,
guarantor or lessee) to a credit provider is deferred OR
(ii) the consumer incurs a deferred debt to the credit provider

Definition of “credit assistance” – s8 of the Act

Three elements:
You will provide credit assistance if
(i) you suggest or assist the consumer to apply for the provision of
credit; or
(ii) for an increase to a credit limit; or
(iii) suggest that the consumer remain in a particular credit
contract.

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What is an “intermediary” and what doesWhat is an “intermediary” and what does
“suggest” mean?“suggest” mean?

Definition of “intermediary” – s9 of the Act

Seven elements:
(i) in the course of a business carried on in Australia by you
(ii) you act as an intermediary (whether directly or indirectly)
(iii) between a credit provider and a consumer
(iv) wholly or partly
(v) for the purpose of securing a provision of credit
(vi) under a credit contract
(vii) for the consumer with a credit provider.

Definition of “suggest” – RG203

Involves proposing the idea to, or introducing into the mind of, a
consumer that they apply for or apply for an increase in or remain in
a particular credit contract. It means offering advice or making a
recommendation.

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Do you need to apply for a credit licence?Do you need to apply for a credit licence?

Yes –if you are going to engage in providing
credit services in relation to premium funding.

Registration process – before 1 July 2010
- online with ASIC
- provide contact details and ABN
- EDR membership
- nominate Responsible Managers with no
unfavourable criminal or credit history.
- description of business activities - be sure to note that
you are an insurance broker providing credit
assistance.

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Credit licence application – 1 July to 31 DecemberCredit licence application – 1 July to 31 December
20102010

Application process

- online with ASIC

- very similar to AFSL process

- general conduct and responsible lending
obligations

ASIC will grant the licence if the following
conditions are satisfied:

(i) The application was made properly and is in the
approved form with all supporting information;

(ii) ASIC has no reason to believe that the applicant
is likely to breach the obligations that are imposed on
their licensees and that ASIC has no reason to
believe the applicant is not a fit and proper person.

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Content of credit licence applicationContent of credit licence application

Need to demonstrate:

Nominate Responsible Managers

Ensure minimum qualifications (at least Cert IV
and 2 years in the industry and no breach
activities)

Need IDR and EDR process

Compensation arrangements

Risk Management system

Must be financially sound

Appropriate systems and procedures

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Responsible lending obligationsResponsible lending obligations

Disclosure requirements in the credit
guide

Assessment of suitability for credit

Need to consider consumer’s:

current income and expenditure;

maximum amount that they are likely to have to pay under the
credit contract;

extent to which any existing credit contracts are to be repaid in
full or in part from the credit advanced;

consumer’s credit history and their future prospects.

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Should you become an AR of the premium funder?Should you become an AR of the premium funder?

One way to avoid the licensing obligations
is to become an Authorised
Representative of the premium funder

BUT – exposes you to AML-CTF
requirements and it is not a usual industry
arrangement for brokers

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Compensation requirements for AFS licenseesCompensation requirements for AFS licensees

Updated RG 126

Effective 1 January 2010

No need for 12 months of automatic run
off cover

Fraud cover is not required for licensees
who are sole traders

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Possible entitlement to refund of stamp duty onPossible entitlement to refund of stamp duty on
insurance policiesinsurance policies

If you:

(i) placed a cover for a NSW or ACT risk
with a Lloyds syndicate

(ii) before 20 June 2006
Your client may be eligible for a refund of
the stamp duty that was paid to NSW or
ACT State Revenue Office
(Chief Commissioner of State Revenue v
Qantas Airways Ltd (2009)

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Disclosure about the Financial Claims Scheme inDisclosure about the Financial Claims Scheme in
PDS’sPDS’s

What is the Financial claims scheme?

The financial claims scheme provides certain policy holders with a
compensation mechanism in the event that an insurer becomes
insolvent. It applies to all valid claims by eligible policy holders
lodged with insurers, but not yet paid at the time the financial claim
scheme is invoked.

General insurers to disclose to policy holders in the PDS that:

(i) They may be entitled to a payment under the FCS in the event
of a general insurer becoming insolvent;

(ii) Accessibility to the FCS is subject to certain eligibility criteria;
and
(iii) A statement that information about the FCS can be found on
the APRA website.

The regulations will become effective on 12 October 2011.

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Double Insurance and s45 of the ICADouble Insurance and s45 of the ICA

Implications for Brokers

When advising clients who are principals engaging contractors
under supply or service agreements:

Your client should seek to make sure that:

if your client is to be nominated as a named insured on a contractor’s
policy; then

your client is not a party to the contractor’s policy, the contractor’s policy
is not obtained by the contractor as your client’s agent and your client
does not provide consideration under the contractor’s policy;

Enables them to rely on the “other insurance” clause in their own
policy.

If they are a party to the policy on inception, they may find that
s45(1) operates to void the “other insurance” provision in their own
policy.

Zurich v Metals & Minerals Insurance (2009) HCA 50

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Insurance Contracts Amendment Bill 2010Insurance Contracts Amendment Bill 2010

Key areas for change:

Bundled contracts

Electronic Communications

ASIC powers

Duty of Disclosure

Subrogation

Duty of Utmost good faith

Third party beneficiaries

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Broker Data CollectionBroker Data Collection

All brokers in Australia are required to report to APRA on
their total business and their offshore business from 1
May 2010.

The data collection will be for the two months to 30 June
2010 and will be on the best endeavours basis thereafter
brokers will need to send returns to APRA every six
months for the six month period to 30 June and then 31
December.

The purpose of the data collection is for brokers to report
on all insurances that they arrange with unauthorised
foreign insurers.