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National licensing laws come into force

By Lesley Parker

Insurance brokers caught in the net of a new national licensing regime (aimed at anyone who provides, or helps to secure, credit for consumers) face the possibility the new laws may be extended to cover small business clients as well.

The first phase of the new National Consumer Credit Protection Act, which took effect on 1 July, is aimed mainly at the provision of credit such as home loans, personal loans and credit cards. However, insurance premium funding services are captured by the laws if they are “for wholly or predominantly personal, household or domestic purposes”.

This typically occurs when brokers extend their relationship with small business operators by helping to secure premium funding for the personal insurance needs of the owners.

Under the Act, anyone who engages in ‘credit activities’ should have registered with the Australian Securities and Investments Commission (ASIC) by 1 July  and at the end of the year will have to apply for a full Australian credit licence. Registered brokers still have to meet certain requirements in the interim, including some regarding their suitability.

As a licensee, they have to comply with the Act’s ‘responsible lending’ provisions, which require them to make reasonable inquiries about a consumer’s financial situation and to ensure the finance they’re arranging is suitable.

The National Insurance Brokers Association (NIBA) and the Insurance Premium Finance Association Australia (IPFAA) have been holding discussions with ASIC and Federal Treasury to try to secure an exception for insurance brokers who can’t act under one of the existing “exceptions” and premium funders who are affected.

ASIC has rejected the application for relief, but talks are continuing with Treasury. A lawyer acting for NIBA, Mark Radford, says the hope is that some relief can be obtained by the time licensing kicks in at the end of the year.

In the meantime, the Government is seeking submissions on the green paper for phase two of its credit reform package, which considers whether the new laws should be extended to cover small business customers and, if so, to what degree.

This would have a significant impact on brokers and is being opposed by NIBA.

In the meantime, the small number of insurance brokers who help arrange premium funding for individual consumers can:

• Continue with the Australian credit licensing process. Brokers registered with ASIC can now continue to provide premium funding services for individuals until 31 December, at which point they’ll need to seek a licence to carry on (unless an exception is granted).
  There is no obligation for brokers to proceed to licensing just because they have registered.
• Seek to act within the ‘referrer’ or other exceptions that already exist. The referrer exemption is for people who merely pass on the contact details of a registered or licensed funder to a consumer.
  To take advantage of this recently broadened referrer exception, brokers will have to be a representative of a registered or licensed premium funder. However, Radford says brokers considering going down this path need to be aware it’s likely to create anti-money-laundering obligations that didn’t exist for the broker before.