2. Sydney Melbourne Brisbane Canberra Newcastle
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
3. Sydney Melbourne Brisbane Canberra Newcastle
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.
4. Sydney Melbourne Brisbane Canberra Newcastle
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
5. Sydney Melbourne Brisbane Canberra Newcastle
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.
6. Sydney Melbourne Brisbane Canberra Newcastle
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.
7. Sydney Melbourne Brisbane Canberra Newcastle
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.
8. Sydney Melbourne Brisbane Canberra Newcastle
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.
9. Sydney Melbourne Brisbane Canberra Newcastle
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
10. Sydney Melbourne Brisbane Canberra Newcastle
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.
11. Sydney Melbourne Brisbane Canberra Newcastle
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
12. Sydney Melbourne Brisbane Canberra Newcastle
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
13. Sydney Melbourne Brisbane Canberra Newcastle
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)
14. Sydney Melbourne Brisbane Canberra Newcastle
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.
15. Sydney Melbourne Brisbane Canberra Newcastle
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
16. Sydney Melbourne Brisbane Canberra Newcastle
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
17. Sydney Melbourne Brisbane Canberra Newcastle
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.