Financial services relevant for general insurance are:
- providing financial product advice;
- dealing in a financial product; and
- providing a claims handling and settling service.
Section 912A(1) Corporation Act (also refer RG 104) sets out the general obligations that a AFS licensee in general insurance must comply with:
(a) A licensee must do all things necessary to ensure that the financial services covered by the licence are provided efficiently, honestly and fairly.
This is a broad and overarching obligation. Generally speaking an insurer who fails to act with the utmost good faith (under the Insurance Contract Act) would also be a failure to provide the financial services efficiently, honestly and fairly.
Subscribing to and complying with the standards and timeframes of the General Insurance Code of Practice or Insurance Brokers Code of Practice are typically a strong indicator of a commitment to providing the financial services efficiently, honestly and fairly (refer ASIC INFO 253).
(aa) A licensee must have in place adequate arrangements for the management of conflicts of interest that may arise wholly, or partially, in relation to activities undertaken by the licensee or a representative of the licensee in the provision of financial services as part of the financial services business of the licensee or the representative.
The 3 ways to manage conflicts are (refer RG 181):
– disclosing the conflict;
– managing the conflict through controls; and/or
– avoiding the conflict
(b) A licensee must comply with the conditions on the licence
(c) A licensee must comply with the financial services laws. These laws include:
– Corporations Act
– ASIC Act
– Insurance Contracts Act
– Insurance Act (plus a number of other Acts applying specifically to general insurers)
– Privacy Act
(ca) A licensee must take reasonable steps to ensure that its representatives comply with the financial services laws. Representatives include employees or directors of the licensee or of a related body corporate of the licensee , authorised representatives and any other person acting on behalf of the licensee.
This is often referred to as the ‘monitoring obligation’ and should be incorporated in a Monitoring program that also includes CPS 230 (for general insurers in context of material service providers) and under the GI Code & Brokers Code responsibilites for the conduct of employees, authorised representatives, distributors and sevice suppliers
(d) A licensee must have available adequate resources (including financial (refer RG 166), technological and human resources (refer RG 104)) to provide the financial services covered by the licence and to carry out supervisory arrangements.
Note that this requirement does not apply to APRA regulated insurers. General insurers authorised under section 12 of the Insurance Act (including foreign general insurers) must comply with APRA Prudential Standards such as CPS 220, CPS 230 and CPS 234 while Lloyds underwriters (authorised under section 93 of the Insurance Act) must comply with the FCA UK Prudential Standards.
(e) A licensee must maintain the competence to provide those financial services.
This obligation requires that the licensee must have sufficient Responsible Managers who have relevant skills, knowledge and experience covering the financial services (refer RG 105).
(f) A licensee must ensure that its representatives are adequately trained and are competent, to provide those financial services
– any person providing financial product advice to retail clients must have RG 146 training
– training must include training on financial service laws, relevant industry Codes and the licensees products and services. It is not appropriate to simply mandate annual CPD/CIP points.
– competency goes to skills, knowledge and experience in context of the financial services
(g) A licensee must, if those financial services are provided to persons as retail clients,:
(i) have adispute resolution system complying with the enforceable paragraphs of RG 271;
(ii) be a member of AFCA; and
(iii) provide IDR data reporting to ASIC every 6 months in the prescribed timeframe and format
(h) A licensee must have adequate risk management systems.
Note that this requirement does not apply to APRA regulated insurers. General insurers (including foreign general insurers) must comply with APRA Prudential Standards such as CPS 220 while Lloyds underwriters must comply with the FCA UK Prudential Standards.
Documented compliance measures
ASIC use the expression ‘measures’ or ‘compliance measures’ to refer to a licensees processes, procedures or arrangements for ensuring that, as far as reasonably practicable, the licensee complies with obligations as a licensee, including the general obligations. (RG 104.23)
ASIC expects that licensees will document their measures. Documentation helps the licensee demonstrate whether or not they are complying with the general obligations. (RG 104.26)
ASIC expects that licensees will implement, monitor and report on the measures (including breaches to ASIC). (RG 104.27 – 104.30)
ASIC expects that licensees will review their measures (RG 104.31 and RG 104.32):
Regularly reviewing your measures will help to ensure they remain effective. In some cases, it may be sensible for you to consider external review. Where compliance issues have arisen (such as major breaches or repeated compliance failures), external compliance review is particularly appropriate.
You need to review your measures when there are changes to your obligations, your business or the environment in which you operate. We expect that you will have a process for identifying changes that may impact on the effectiveness of your measures.
Compliance assistance
I can provide you with compliance support to:
- obtain an AFS Licence or vary your existing licence
- develop a framework to implement your compliance measures
- design and develop a tailored Monitoring program
- conduct a compliance review of the adequacy of your compliance measures
- design and develop a tailored Risk & Compliance Manual for your business