Government and regulatory update: November 2015

by Dallas Booth     13-Nov-2015


 

A number of important developments have occurred in the past few weeks related to issues that have the potential to majorly impact on the insurance broking sector: namely the Financial Systems Inquiry, and the Parliamentary Joint Committee's report on professional, ethical and education standards in the financial services industry.

Below is a brief update on these latest developments, as well as overview of other important areas of regulatory work currently on the NIBA agenda.

 

Latest updates

Financial Systems Inquiry

The Government has announced its response to the Financial System Inquiry, which can be viewed here.

The Government has given broad agreement to virtually all recommendations, including recommendations to place new legal obligations on manufacturers and distributors of financial products, and new powers for ASIC to intervene in financial markets where it appears consumers are suffering detriment.

The Government indicated that it will enter into a period of consultation with all interested parties in relation to the development of new legislation to give effect to these decisions.

From a NIBA and insurance broking perspective, the devil is always in the detail, and NIBA will be closely watching the preparation of draft legislation in order to ensure there are no unintended consequences for brokers.

 

Professionalism in Financial Services

As part of its response to the Financial Inquiry, the Government announced the following:

“The Government agrees to develop legislative amendments to raise the professional, ethical and educational standards of financial advisers by requiring advisers to hold a degree, pass an exam, undertake continuous professional development, subscribe to a code of ethics and undertake a professional year.”

It was not clear from the Government Response document whether this will apply to all financial advisers including insurance brokers, or will be limited to those giving Tier 1 advice – mainly life insurance advisers, financial planning and investment advisers.

NIBA is taking steps to clarity this matter and will update members accordingly.

 

Life insurance reforms

On 6 November 2015 the Assistant Treasurer announced the Federal Government will proceed with a number of reforms designed to improve the quality of advice in life insurance. Key reforms will reduce the amount of commission payable for life insurance to a maximum of 60% from 1 July 2018. There will also be provisions for claw back of commission where policies are cancelled within 2 years.

The reforms are expected to start taking effect on 1 July 2016. NIBA will watch the development of the reforms very closely, and will keep members informed of the progress of these changes.

Details of the Government’s decision are available online at can be viewed here.

 

Other matters

Federal Government capability review of ASIC

On 27 July 2015, the Assistant Treasurer announced the Government would undertake a “capability review” of ASIC to ensure it is able to undertake its role effectively and has the capability to address future regulatory challenges. The review will be forward looking, and will look at ASIC’s leadership, strategy, people, resource allocation and processes.

NIBA met with members of the Capability Review in September 2015, and we provided our observations and comments on ASIC’s performance and effectiveness. We will keep Members informed of the progress of this review.

 

Funding of ASIC

On 28 August 2015, the Assistant Treasurer released a consultation paper on the funding and resourcing of ASIC. Currently all ASIC revenue flows to the Government, and ASIC is funded by the Federal Budget. A recommendation of the Financial System Inquiry was that ASIC be funded by the industry that it regulates.

Any move of this nature would substantially increase the level of fees, charges and levies paid by organisations regulated by ASIC.

NIBA has been closely examining the consultation paper, and held an industry round table meeting to discuss the proposals in September 2015. NIBA’s concern is to ensure that if this proposal goes ahead, funding should be shared according to the level of regulatory activity in the various sectors of financial services.  In other words, the sectors that require and receive the greatest level of regulatory activity should be the sectors that contribute the bulk of ASIC funding in the future.

NIBA provided a submission to Federal Treasury in response to the consultation paper on 9 October 2015.

 

Northern Australia Insurance Premiums Taskforce

On 30 March 2015 the Federal Government announced the formation of a taskforce to explore options for reducing home, contents, and strata insurance premiums in Northern Australia.

The taskforce, which is being led by Mr Mike Callaghan, a former senior executive of Federal Treasury, is being assisted by a Reference Panel, which includes NIBA CEO Dallas Booth.

An interim report was released on 17 August 2015, which outlines a number of possible solutions to the high cost of insurance in Northern Australia, and calls for submissions and comments on the suggested approaches. These include some form of mutual insurance company providing cover for cyclone damage, and some form of reinsurance pool for cyclone risk.

The Interim Report outlines a number of areas where further input and suggestions are required.

NIBA met with a number of Members in Cairns and Townsville to discuss the matters in the Interim Report, and subsequently lodged a submission with the Taskforce. Copies of submissions to the Taskforce can be viewed here.

A final report will be provided to the Government in November. NIBA will continue to support the work of the Taskforce in the meantime.

 

Federal Government assistance for farmers

On 4 July 2015 the former Prime Minister released the Government’s Agricultural Competiveness White Paper, which contains a number of initiatives to support farmers and rural communities.

The White Paper indicated the Government has committed $29.9 million over 4 years for farm insurance advice and risk assessment grants.

NIBA has spoken with the Department of Agriculture in relation to this proposal on a number of occasions, and expects to be consulted again in coming weeks as the program is developed.  The Department is preparing guidelines for the operation of the insurance advice and risk assessment funding, and these will be provided to Members as soon as they become available.

 

ASIC Corporate Plan 2015 – 2019

ASIC has released its Corporate Plan for the period through to June 2019, and has indicated its focus areas for 2015-2016.

ASIC leaders have been making many comments in recent months about the need for appropriate culture within financial organisations. It is clear ASIC will increasingly look at the role and responsibilities taken by Directors and senior managers in setting the tone and behaviour of organisations. If “bad apples” are found, Directors will be asked to explain why the people involved had not been identified and dealt with by management.

ASIC is also placing greater responsibility on the role of “gatekeepers” – those who give consumers access to the financial system. This would have to include insurance brokers, we believe.

A major focus of attention in the next 12 months will be poor financial advice, with particular attention to the life and investment industries. Now that the FOFA legislation is in place, ASIC will take firm action in relation to any financial adviser not acting in the best interests of their client, especially where investor or consumer loss occurs.

The ASIC Corporate Plan is available to view here.

 

As always, questions or comments on any of these matters should be directed to me directly at dbooth@niba.com.au

Read more about NIBA's Government and regulatory work and submissions here.

 

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