Common compliance errors

There is a wide range of common compliance errors brokers must strive to avoid:

  • Brokers operating under a binding agreement are required to have the authorisation to “issue” policies on their licence. This was a technical omission made by many brokers who have then had to seek a licence variation with ASIC. ASIC also has an expectation that to operate a binder, a licensee must have experience in operating a binder or issuing products.
  • Internal Complaints – An annual complaints register needs be maintained with full details recorded. Staff need to be trained in the IDR procedures.
  • Research into insurer security and products is something brokers do in the course of their daily business. What is generally lacking is the documented and formal proof that this exercise is being completed on a regular basis. B9 of the licence application states how often you have committed to research security and products. Security is usually checked by referring to the Standard & Poor’s ratings in the NIBA Gazette, public news and market knowledge. Products should also be reviewed for content.
  • NTS is aware of brokers who have not implemented Conflict of Interest (COI) policy and procedures or a register. Where they have done so we often find nothing in the register and that they have not documented the exercise of establishing what their conflicts are. Once all this has been done it has to be advised to all staff. COI also applies to wholesale so you have to have a process where they are advised if there are any conflicts. Usually this is done by issuing an FSG to all clients.
  • Others will miss the conflicts such as declaring they receive interest/over riders from premium funders.
  • Referrers should always operate under a written agreement which states they cannot give advice. The most common failure is brokers not declaring spotters and referrers fees to the client.
  • Many brokers have no written agreements with their outsourced providers. You are required to monitor the suitability and performance of service providers, in particular IT consultants. We feel it would be difficult to do so unless you have an agreement setting out those services. Many brokers stated they would be operating under an agreement in their licence applications.
  • You are required to supervise and monitor all of your staff and representatives. It would be difficult to do so when you have not specifically told them what to do. This is where the importance of manuals arises. The most common error is that the manuals have not been tailored to meet the specific needs of the individual business.

Human Resources can attract a multitude of errors. In brief the most common failures are:

  • Not tailoring the HR manual to suit the business;
  • The inadequacy of some representatives’ qualifications. For example, Responsible Managers do not have the industry required qualifications and Tier 2 staff giving advice on personal accident;
  • Training registers not kept up to date;
  • A training gap and needs analysis has not been conducted. It is not sufficient to just send staff to any training. It must be in accordance with their roles and responsibilities. A good time to discuss the training needs of an employee is during their performance review;
  • No staff register or organisational chart has been prepared. The organisational chart highlights the reporting lines within the company such as Complaints Officer and Compliance Officer. An organisational chart is required if you seek a licence or a variation to your licence and is often requested if you are subject to an ASIC audit; and
  • Little or no thought to succession planning. Succession is not just about replacing the managing director; it is about how the business intends to service existing clients should one or several key staff be unable to perform their duties for a length of time. Not only does ASIC need to be assured you have some process in place to protect your clients – as principals it should be one of your top service priorities.

Mandatory disclosure documents can attract a multitude of errors. In brief:

  • Often an FSG or an SOA is sent out without recording the version and/or when it was sent or keeping a copy.
  • FSGs, SOAs and PDSs not being sent out within required timeframes.
  • The content of the FSG often lacks some important information. The most common being the use of referrers, associations or premium funding or other conflicts of interests.
  • SOAs which do not actually state the basis of the advice and why it was given.
  • Not including the AFS number and/or contact details of either the licensee or authorised representatives.
  • Promotional material which includes restricted words such as independent, impartial and unbiased.
  • Failure by the licensee to identify and document potential or actual conflicts, evaluate the impact of these conflicts and how they will be dealt with. After this process develop and implement polices and procedures including establishing a register. COI applies to retail and wholesale clients. One of the best ways in which to tell clients about conflicts is in the FSG. However licensees should remember that disclosure alone may not be sufficient.
  • Having in place suitably documented referrers or spotters agreements and not declaring this relationship or any remuneration arrangements to clients.
  • Lack of written agreements with outsourced providers. If an agreement is in place it is common to see no performance criteria or how the relationship will be monitored by the licensee.

Lack of well documented procedures that are tailored to reflect the actual standards and workflow operating within the licensee’s business. This often results in poor supervision of staff and authorised representatives.