AFS Licensed insurers, underwriting agencies, TPAs (insurance claim managers), general insurance brokers and claimant intermediaries must comply with the general obligations set out in Section 912A(1) Corporations Act.
You must have measures for ensuring you comply with your obligations
ASIC uses the expression ‘measures’ or ‘compliance measures’ to refer to your processes, procedures or arrangements for ensuring that, as far as reasonably practicable, you comply with your obligations as a licensee, including the general obligations (see RG 104.23-24).
ASIC expects you too:
(a) document your measures in some form;
(b) fully implement them and monitor and report on their use; and
(c) regularly review the effectiveness of your measures and ensure they are up to date
Tip: For most licensees (other than APRA regulated insurers) a single, tailored (describing your business and your products/services & your obligations; & how these are managed), Risk & Compliance Manual is sufficient. The Manual should also include governance & breach management. Contact me for assistance.
What are the general obligations?
- the financial services covered by the licence must be provided efficiently, honestly and fairly
In INFO 253 ASIC provides insights into what this obligation means in context of claims handling & settling services. The principles can be provided to sales & underwriting.
- providing the financial services in a timely manner including meeting time frames and standards in the GI Code of Practice or Insurance Brokers Code of Practice
- providing the financial services in the least onerous and intrusive way possible
- providing the financial services fairly and transparently, and
- in a way that supports consumers, particularly ones who are experiencing vulnerability or financial hardship
2. have in place adequate arrangements for the management of conflicts of interest
This means identifying conflicts of interests and managing them by:
- disclosure
- controlling (through key controls); and
- avoiding.
All conflicts (& there management) should be included in a conflicts of interest register with training provided to employees and other representatives.
3. comply with the conditions on the licence
The conditions on your AFS licence reinforce some of the general obligations, so breaching a licence condition will sometimes also be a breach of the general obligation that the condition relates to.
You must have measures in place to manage your licence conditions including, for example, a key person requirement condition or for insurance brokers the use of restricted broker terms.
4. comply with the financial services laws
Financial services laws is a wide concept and in addition to Corporations Act & ASIC Act includes any other Commonwealth, State or Territory legislation that covers conduct relating to the provision of financial services (whether or not it also covers other conduct), but only in so far as it covers conduct relating to the provision of financial services.
Financial services laws therefore relevantly includes: Insurance Contracts Act, Insurance Act and other Acts applying to APRA regulated insurers and the Privacy Act.
5. take reasonable steps to ensure that its representatives comply with the financial services laws
This obligation requires licensees to train and monitor their employees, authorised representatives and any other person providing the financial services on their behalf.
Tip: a monitoring program should cover AFSL, Code and (where relevant) CPS 230 obligations. Contact me for assistance.
6. have available adequate resources (including financial, technological and human resources) to provide the financial services covered by the licence and to carry out supervisory arrangements
This obligation does not apply to APRA regulated insurers as this obligation is covered by the Prudential Standards.
All other licensees should have predictive measures in place based on budgetary, forecasting and actual data & included as a standard agenda item at the quarterly/monthly Risk & Compliance Committee meeting and Board meetings.
It should be noted that the licensee must also have adequate resources to conduct its monitoring obligations.
Licensees (other than APRA regulated insurers) must meet the relevant financial requirements set out in RG 166.
7. maintain the competence to provide those financial services
At all times the licensee must have sufficient responsible managers who together, have the requisite knowledge, skills and experience to cover the financial services and individually meet one of the prescribed options in RG 105.
8. ensure that its representatives are adequately trained (including by complying with the CPD provisions), and are competent, to provide those financial services
This obligations means that where a representative provides financial advice they must be Rg 146 qualified.
The competency obligation is generally met during the hiring process and through ongoing training where the representative must have the relevant qualifications, experience, skills and knowledge to provide the financial services.
The training obligation is generally met annually by achieving 20/25 CIP/CPD points however to be compliant the training must cover financial service laws and the firms products and services. Additional training obligations arise under the GI Code and the Brokers Code.
9. If those financial services are provided to persons as retail clients have a dispute resolution system complying with the enforceable paragraphs of RG 271, meet the IDR data reporting obligations and be a member of AFCA
10. have adequate risk management systems
This obligation does not apply to APRA regulated insurers who instead must comply with CPS 220
Other key obligations
Licensees have a number of other key obligations that should be covered in the Risk & Compliance Manual:
- Having adequate PI insurance (does not apply to APRA regulated insurers)
- Brokers must manage client money as regulated
- Disclosure obligations to provide (where relevant) to retail clients: a general advice warning, a statement of advice (for personal accident only), FSG, PDS, and Cash Settlement Fact Sheet
- Conduct obligations such as not engaging in misleading or deceptive conduct.
- Reportable situations (reported to ASIC)
Risk and Compliance Manual
As mentioned earlier, a tailored Risk & Compliance Manual covering all licence, Code, binder and other relevant obligations is critical to managing risk and compliance in a systematic approach that includes appropriate governance mechanisms.
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