An AFS licence authorises you and your representatives to provide financial services to clients.

Part 7.6 Division 2, Corporations Act sets out the requirements to be licensed or authorised.

Generally, a person who carries on a financial services business in Australia must hold an Australian financial services licence (AFSL) covering the provision of the financial services (s 911A).

Meaning of financial service

A person provides a financial service (relevantly for general insurance), if they:

• provide financial product advice;
• deal in a financial product; or
• provide a claims handling and settling service.

General insurance products are financial products (s764A), subject to certain exemptions for example surety bonds and reinsurance.

This typically applies to insurers, underwriting agencies, insurance brokers, TPAs, and claimant intermediaries.

What is financial product advice?

A recommendation or a statement of opinion, or a report of either of those things, constitutes financial product advice under s766B (also refer RG 36.19) if:

(a) it is intended to influence a person or persons in making a decision about general insurance products, or could reasonably be regarded as being intended to have such an influence; and

(b) it is not exempted from the definition of financial product advice.

Financial product advice will generally involve a qualitative judgement about, or an evaluation, assessment or comparison of, some or all of the features of one or more general insurance product(s). (refer RG 36.20)

What is the meaning of ‘deal in a financial product’?

The following conduct constitutes dealing in a financial product within the meaning of s766C(1):

• applying for or acquiring a general insurance product;
• issuing a general insurance product;
• varying a general insurance product (such as by endorsement); or
• disposing (cancelling) of a general insurance product.

Arranging for a person to engage in the above conduct also constitutes dealing.

Arranging refers to the process by which a person negotiates for, or brings into effect, a dealing in a general insurance product (e.g. an issue, variation, disposal, acquisition or application). The person who is arranging may be acting for a product issuer, seller or consumer. Arranging includes ‘arranging contracts of insurance’ (RG 36.38-39)

Your conduct may constitute arranging if (RG 36.43):

• your involvement in the chain of events leading to the relevant dealing is of sufficient importance that without that involvement the transaction would probably not take place (e.g. where you are the main or only person consumers deal directly with in a particular transaction);
• your involvement significantly ‘adds value’ for the person for whom you are acting; and
• you receive benefits depending on the decisions made by the person for whom you are acting.

Referrals

You do not need to hold an AFS licence if you provide a financial service that consists only of a referral (RG 36.72), that is:

• informing another person that a licensee (or one of its representatives) is able to provide a particular financial service or class of financial services; and
• giving that other person contact details for the licensee or representative.

You must disclose any benefits (including commission) that you (and your associates) are to receive in respect of, or that are attributable to, the service: regs 7.6.01(1)(e) and 7.6.01(1)(ea).

Claims handling and settling services

You are generally providing a financial service if you undertake any of the following specific claims handling and settling activities (s766G and refer INFO 253):

• making a recommendation or stating an opinion in response to an inquiry about a claim or potential claim;
• making a recommendation or stating an opinion that could influence a decision about making or continuing with a claim;
• representing someone in pursuing a claim;
• assisting another person to make a claim;
• assessing whether an insurer is liable under an insurance product;
• making a decision to accept or reject all or part of a claim;
• quantifying an insurer’s liability under an insurance product;
• offering to settle all or part of a claim; or
• satisfying a liability of an insurer under a claim.

You are exempt from holding an AFS Licence if you provide a claims handling and settling service and you are not (s911A(2)(ek)):

• the insurer (or issuer of the general insurance product)
• an insurance fulfilment provider with authority from an insurer to reject all or part of a claim
• an insurance claims manager (TPA) – acting for the insurer
• a claimant intermediary – acting for the insured unless exempt (see regulation 7.1.04CAA). An insurance broker is exempt from this category (but only to the extent of the definiition of an insurance broker in s11 Insurance Contracts Act)
• an insurance broker providing the claims services on behalf of an insurer

Loss assessors or loss adjusters, insurance experts, investigators, fulfilment providers (unless authorised to reject claims), and insurance brokers do not need to hold a licence for claims handling and settling. However, an analysis of the claims handling and settling services actually being provided is required.

Exemptions from holding an AFSL

s911A(2) provides exemptions for a person to hold an AFSL and includes financial services provided to wholesale clients by APRA regulated insurers (such term includes Lloyd’s underwriters), including anyone acting on behalf of an APRA regulated insurer, under a binder agreement, such as an underwiting agency.

Care should be taken, and legal advice sought, when intending to rely on an exemption not to hold an AFSL, due to the severe consequences of providing unlicensed financial services.

In addition, an insurance broker may be hesitant to place business with an underwriting agency who does not hold an AFSL, even when relying on an exemption.

Authorised representatives

An Authorised representative is not required to hold an AFSL (Part 7.6 Division 5).

An Underwriting Agency or TPA (who hold their own AFSL ) may only be appointed as an authorised representative of an insurer, under a binder given by the APRA-regulated insurer.

Seek advice

If you need guidance as to whether you are required to hold an AFSL or support to apply for a new licence or a variation of an existing licence, contact me for assistance. paul.muir@complianceadvocacysolutions.com.au

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