𝑻𝒉𝒆 𝒐𝒃𝒍𝒊𝒈𝒂𝒕𝒊𝒐𝒏
AFS Licensees must have in place adequate arrangements for the management of conflict of interest (s912A(1)(aa) Corps Act).
Conflicts of interest are circumstances where some or all of the interests of people (clients) to whom a licensee (or its representative) provides financial services are inconsistent with, or diverge from, some or all of the interests of the licensee or its representatives. This includes actual, apparent & potential conflicts of interest. (RG 181.15)
𝙏𝙮𝙥𝙞𝙘𝙖𝙡 𝙘𝙤𝙣𝙛𝙡𝙞𝙘𝙩𝙨 𝙤𝙛 𝙞𝙣𝙩𝙚𝙧𝙚𝙨𝙩 𝙩𝙝𝙖𝙩 𝙢𝙖𝙮 𝙖𝙧𝙞𝙨𝙚 𝙬𝙞𝙩𝙝𝙞𝙣 𝙩𝙝𝙚 𝙞𝙣𝙨𝙪𝙧𝙖𝙣𝙘𝙚 𝙞𝙣𝙙𝙪𝙨𝙩𝙧𝙮
Some of the typical conflicts that may arise include:
– commissions & non-monetary remuneration paid by the issuer of the products (insurers/MGAs) to insurance brokers. Insurance Brokers act on behalf of the insured (refer s11 Insurance Contracts Act & Part 6.0 Insurance Brokers Code of Practice)
– having equity or common directors in a brokerage & underwriting agency;
– a claims handler or underwriter having a family or personal relationship with the claimant/broker/insured;
– having an interest in an outsourced provider;
– providing insurance broking services to 2 clients who contract with each other;
– receiving gifts or entertainment from a service supplier, insurer etc
𝙈𝙖𝙣𝙖𝙜𝙞𝙣𝙜 𝙩𝙝𝙚 𝙘𝙤𝙣𝙛𝙡𝙞𝙘𝙩
The requirement is to adequately manage the conflict.
The three mechanisms that licensees would generally use to manage conflicts of interest are:
(a) controlling conflicts of interest;
(b) avoiding conflicts of interest; &
(c) disclosing conflicts of interest
Controlling conflicts of interest include:
– passing the file to a colleague or another firm to manage & putting in place ‘ethical walls’;
– adhering to the firms policies & procedures. This means an underwriter would follow their underwriting guidelines when managing a conflict for eg with a broker; similarly a claims handler would follow the claim guidelines where there is a personal relationship & a broker adhering to internal guidelines for commissions;
– dealings with related companies would be conducted at arms-length & on commercial terms.
Disclosing (to the parties)
– this is commonly via a disclosure document (FSG) or on the website (stating who you act for);
– raising & recording on the conflicts or gifts & entertainment register with a senior person sign-off;
Avoiding
If the conflict can’t be adequately managed through controls or disclosure then it must be avoided.
𝘿𝙤𝙘𝙪𝙢𝙚𝙣𝙩𝙚𝙙 𝙚𝙫𝙞𝙙𝙚𝙣𝙘𝙚
It is best practice to document your approach to managing conflicts in a manual or policy & maintaining a conflicts of interest &/or gifts & entertainment register.
Staff & representatives must be trained
If you would like assistance in implementing mechanisms to manage your conflicts reach out to me.