The Brief | 4 March 2019
Financial Services - 4 March 2019
- Royal Commission round-up
- New laws
- ASIC wants to give back its Christmas present
- APRA gives private health insurers a little more time
- The ACCC: Don't forget us!
- Pop quiz - insured property
- Hack attacks
- You want the claims? You can't handle the claims (without a licence)!
At the start of this month, the Final Report of the Financial Services Royal Commission was released. By now, you will have an email folder full of items relating to the Royal Commission that you'll get to 'one of these days'. If you're in the insurance industry, we’ve prepared some insights that might save you some time.
Since the release of the Final Report, there has been a flurry of announcements. Here are the key ones.
The Federal Government has:
- accepted all 76 recommendations and was so impressed with APRA's appointment of Graeme Samuel AC to review the Commonwealth Bank of Australia that it has appointed him to review APRA's own capability;
- passed legislation through the Senate to punish breaches of trustees' and directors' best interest duties in connection with superannuation and to prohibit trustees from giving benefits to employers in return for nomination as a default fund;
- extended the remit of AFCA to consider complaints dating back to 2008 that were not previously heard and which fall within AFCA's current monetary limits and thresholds (AFCA has said it will invite limited consultation on updating its rules so that it can begin receiving historical complaints from 1 July); and
- released draft legislation for consultation on the end of grandfathered conflicted remuneration with effect from 1 January 2021 (consultation ends on 22 March).
- welcomed the new offences and harsher penalties for breaches of financial services laws under legislation passed this month;
- reported on its implementation of the 12 recommendations of the Final Report that are directed at ASIC, including via a comprehensive table of action it plans to take over the next year; and
- told the insurance industry that it is looking closely this year at consumer credit insurance, fraud investigation practices and at the outcome of the review of the General Insurance Code of Practice.
- foreshadowed that it will complete its Enforcement Review report at the end of March and will publish it shortly thereafter;
- like ASIC, published a table showing how quickly it is responding to the Final Report's recommendations; and
- declared that general insurers, in multiple areas, have themselves to blame for the challenges presented by the Final Report because they have failed to mitigate on their own risks that were well-known.
February welcomed into the world these brand new laws which have not yet been released from the maternity ward but are expected to receive Assent soon.
Existing penalties under financial services laws have been increased and could see the most serious breaches of directors' duties lead to prison sentences of up to 15 years. New penalties include offences for licensees who fail to act efficiently, honestly and fairly or for those who fail to report significant breaches.
Whistleblowers in the financial and credit sectors, including former employees and those who wish to remain anonymous, will be protected when reporting breaches of financial services laws and credit laws, including when making certain disclosures to the media. Listed companies, large proprietary companies and trustees of registrable superannuation entities will all be required to have formal whistleblower policies.
In a difficult birth, the Federal Government has managed to get some of its proposed protections for superannuation through parliament. These measures include protecting low-balance accounts and preventing trustees to allow inactive accounts to be eroded by insurance premiums. Additional measures that are intended to prohibit opt-out insurance for members who are under 25 years old and on low-balance accounts were separated from the reform package and still await passage.
Last month we reported that ASIC had scored an unwelcome Christmas present in the form of a Federal Court decision that was largely in favour of Westpac and its subsidiaries. At stake is the meaning of 'personal advice' and whether obtaining personal details from a customer could cause the customer to believe they are receiving personal advice.
On 18 February ASIC declared it will be appealing the decision, consistent with its new mantra of 'Why not litigate?' We wonder if Westpac will seek to include in the appeal books a copy of ASIC's own Regulatory Guide 244, in which ASIC states:
… we will not consider general advice to be personal advice if you clarify with the client when you give the advice that you are not giving personal advice, and you have not considered the client’s relevant circumstances …
Private health insurers will soon have to comply with the same standards relating to auditing, governance and fitness and propriety that apply to other APRA-authorised institutions. However, as some may not have their house in order by the 1 July 2019 deadline, APRA has written to the industry to tell them they have until 31 March 2019 to apply for an extension.
Joining the financial services fray, the ACCC has announced that its enforcement and compliance priorities for 2019 include taking action against anti-competitive conduct and competition issues in the financial services sector. Now might be a good time to air those grievances about competitor misconduct that you've been holding onto. Another area of focus for the ACCC this year will be consumer guarantees on expensive electrical products and whitegoods and this may adversely affect those who offer extended warranty products to supplement the consumer guarantees provided by the Australian Consumer Law.
If insured property is damaged but an insurer refuses to pay the claim, does a cause of action against the insurer arise:
(a) when the property is damaged; or
(b) when the insurer fails to pay within a reasonable time?
On 26 February, in a 3:2 decision, the Court of Appeal found that, even if no claim has yet been made and even if the cost of repairs cannot yet be ascertained, an insured's cause of action against its insurer for breach of contract arises when the damage occurs. Sometimes, as in this case, this will mean the insured runs out of time to sue the insurer. We suspect this is not the last we'll hear on this issue.
Watch out for hackers! The OAIC has released its most recent report of notifiable data breaches. In the quarter ended December 2018, 70% of breaches in the 'Finance' sector (which includes superannuation) were caused by malicious or criminal attacks. Might be time to check if your insurance covers the costs of both notifying and responding to data breaches.
Treasury has commenced consultation on how to end the financial services exemption for insurance claims handling. There's no draft legislation at this stage because much remains to be determined. For example, Treasury sees merit in limiting the new claims handling financial service to retail clients only, but is concerned that there may be other types of policies acquired by individuals and small businesses that should benefit from this reform. Treasury also recognises the need for the law to be clear about when 'advice' will or won't be deemed to be given to an insured in the course of a claim.
It seems to us that the existing definition of 'advice' has a narrower application to claims than some commentators have suggested but the industry should carefully consider the potential for scope creep here. For example, Treasury has raised the potential for the new law to apply to superannuation trustees, even though they are not acting on an insurer's behalf. This goes beyond the recommendations of the Financial Services Royal Commission Final Report.
Consultation ends on 29 March.
Want to know more about how these issues affect your business? Reach out to a member of our team.
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