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Choice of Superannuation Funds (Consumer Protection) Bill 1999

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THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

HOUSE OF REPRESENTATIVES

 

 

 

 

Choice of Superannuation Funds (Consumer Protection) BILL 1999

 

 

EXPLANATORY MEMORANDUM

 

 

 

 

 

(Circulated by authority of the

Minister for Financial Services and Regulation, the Hon Joe Hockey, MP)



Choice of Superannuation Funds (Consumer Protection) BILL 1999

 

GENERAL OUTLINE

 

This Bill will introduce a range of consumer protection initiatives for the life insurance industry.

The measures are designed to:

·        improve information flows by placing product disclosure requirements on life companies;

-        life companies will be subject to a general requirement to disclose all material information that a consumer reasonably needs in order to make informed decisions;

·        improve conduct by life insurance companies, advisers and brokers when dealing with consumers;

-        advisers and brokers will be required to disclose the capacity in which they act and any benefit or advantage they receive in giving the advice; and

·        increase avenues of redress available for consumers;

-        injunctions will be available where a life company or broker is or has contravened the requirements of the Bill;

-        civil remedies will be available to persons who suffer damage because of misleading and deceptive statements made by a life insurance company, broker or adviser; and

-        criminal sanctions will be available where a person suffers loss or damage as a result of a misleading statement in information produced pursuant to the life company’s obligation to provide information to owners and prospective owners of life policies.

The measures will allow consumers to better understand and compare alternative complex financial products and facilitate decisions regarding these products. 

Currently, conduct and disclosure within the life insurance industry is regulated by non-legislative instruments such as a Code of Practice, Circulars and Policy Statements, which cover conduct and disclosure by advisers and product disclosure.  The Bill provides scope for these instruments to be given statutory backing through regulation.

This Bill will support the Government’s member choice of superannuation fund legislation.  The Bill demonstrates the Government’s commitment to having in place an appropriate compliance regime to support the initiatives in the choice legislation. 

The Bill broadly follows reforms proposed as part of  the Corporate Law Economic Reform Program (CLERP 6).  This Bill is a transitional measure in the move to achieve consistency in the regulation of all financial service providers.   The Bill by anticipating the level of conduct and disclosure that is proposed under the CLERP 6 framework will minimise the disruption to participants in the life insurance industry when moving from their current regulation to a final uniform regulatory regime.

 

FINANCIAL IMPACT STATEMENT

 

There is no financial impact to the Commonwealth as a result of these measures.



REGULATION IMPACT STATEMENT

Problem Identification

The problems addressed by this Bill are:

a)     serious information problems faced by consumers purchasing life insurance products which generally involve long-term contractual obligations;

b)    shortcomings in written and oral life insurance information/advice, including sales material; and

c)     marked disparities in knowledge and information between insurance suppliers and consumers which place consumers in a weak bargaining position.

 

Specification Of Regulatory Objectives

The objectives of the proposed regulatory measures are to enhance life insurance consumer protection through increased life company accountability, statutory remedies and sanctions, disclosure and other requirements to improve the quality of information disclosure to consumers and to enable them to make informed decisions when purchasing or maintaining life insurance products.

 

Identification Of Alternatives

Alternative regulatory mechanisms for consumer protection

 

Option 1: No specific action

Under this option no measures would be introduced, and ASIC and the life insurance industry would continue to operate under current prudential requirements, supplemented by non legislative guidelines.

 

Option 2: Information strategy

The option would involve a comprehensive Government information campaign aimed at enhancing consumer awareness of life insurance.

 

Option 3: Choice of Superannuation Funds (Consumer Protection) Bill 1999

This option would involve introducing the Choice of Superannuation Funds (Consumer Protection) Bill 1999 to principally address information asymmetries and consumer bargaining imbalances in the life insurance market.

 



Impact Analysis

Impact Group Identification

Groups likely to be affected by the proposed consumer protection measures include life insurance companies, life insurance and investment advisers, life brokers, consumers and policy owners.

 

Assessment of Costs and Benefits

An assessment of the costs and benefits of Options 1, 2 and 3 above is outlined below.

Option 1: No specific action

Any benefits from this option in terms of savings in administrative costs by not introducing the Choice of Superannuation Funds (Consumer Protection) Bill 1999 and associated legislation would be offset by the continuance of market failures; such as some shortcomings in the quality of written and oral life insurance information provided for consumers in the market, and the weak bargaining position of consumers when attempting to research and negotiate purchases of life insurance products.  Such market failures have been responsible at times for industry instability through bad publicity and relatively high rates of policy cancellations.  As life insurance often serves as retirement income streams, industry instability has implications for the Government’s retirement incomes policy of encouraging people to save adequately for their retirement.

 

Option 2: Information strategy

The advantage of this alternative is the long term benefits that could be achieved through an information campaign aimed at educating consumers about life insurance products and their advantages for retirement income arrangements.  The disadvantage is that the Government would need to commit itself to a long-term and costly information campaign to achieve any lasting benefits.

 

Option 3: Choice of Superannuation Funds (Consumer Protection) Bill 1999

The advantage of this option is that it will lift the standard and quality of life insurance service and advice, improve transparency and ensure that appropriate remedies and sanctions are made available to consumers.  The option will also enable statutory backing to be given to various information disclosure requirements and a Code of Practice, that currently exist as non-enforceable guidelines.  A disadvantage is that a minority of life insurance advisers may argue that the proposed measures are intrusive on life insurance selling practices.  However, the majority of the industry sees considerable benefits with the proposed measures in fostering an improved image of the industry, raising industry standards and reinforcing consumer respect and trust.  As the industry is generally already complying with many of the standards in the Bill contained in the Life Insurance Codes of  Practice, industry compliance costs will be minimal.



Other Requirements

Consultation

A wide ranging consultative process has been undertaken with industry bodies, consumer groups, professional bodies and others on the proposed measures and there is general acceptance of the measures from these stakeholders.  The bodies consulted include the Investment and Financial Services Association, the National Insurance Brokers Association, the Financial Planning Association, the Consumers’ Federation of Australia, the Australian Consumers’ Association, the Australian Competition and Consumer Commission, and the Australian Securities and Investments Commission.

 

Review

It is anticipated that the operation of this Bill will be reviewed in conjunction with proposals to implement the Corporations Law Economic Reform Program.



NOTES ON CLAUSES

 

PART 1 - PRELIMINARY

OUTLINE OF THE PART

1.                    The object of this Part is to prescribe the scope and timing of the application of the Bill and to provide definitions for the terms used.

0                     Short title

1.                    This clause provides for the Act to be cited as the Choice of Superannuation Funds (Consumer Protection) Bill 1999 .

1                     Commencement

1.                    This clause provides for the commencement of the Act. 

2.                    Clauses 1, 2 and 16 of the Bill come into operation on the day the Bill receives the Royal Assent.

3.                    The remaining provisions will commence on a day to be fixed by Proclamation or if no Proclamation is made within six months after the Bill receives Royal Assent, the first day after the end of that six month period.

2                     Object of the Bill

1.                    This clause sets out the object of the Bill which is to ensure, as far as possible, that current and prospective life insurance policy owners, beneficiaries and prospective beneficiaries receive all information that they would reasonably require to enable them to make an informed choice about deciding whether to enter into, vary continue or discontinue a life policy.

2.                    These aims are achieved by establishing obligations that require life companies, life brokers and their respective advisers to be accountable for their conduct and to provide consumers with adequate information and advice, including in relation to the capacity in which they act, the basis of their recommendations and any interests that may influence the advisers recommendations.

3                     Definitions

1.                    This clause defines the expressions and terms used in this Bill unless a contrary intention appears.

4                     Agents

1.                    The term agent is taken to mean a person who has a written or oral agency agreement with another person.  A person may be a body corporate or a natural person.

5                     Issuing promotional material

1.                    This clause defines the means by which promotional material will be deemed to have been distributed.  This includes broadcasting by electronic means, including the internet, as well as more traditional printed information.

2.                    A life company, or a person acting on its behalf, issues promotional material if it publishes or transmits the material to another person by any means for the purpose of inviting or encouraging the person to engage in a life insurance activity (see clause 7).

6                     Engaging in a life insurance activity

1.                    The expression ‘engaging in a life insurance activity’ is defined as referring to when a person enters into, varies, continues or discontinues a life policy; becomes, remains or stops being a group member; or varies the benefits to which they are entitled as a beneficiary under a group policy.  A person who becomes, or stops being a group member, is also taken to be engaging in a life insurance activity.

2.                    The expression ‘engaging in a life insurance activity’ is intended to capture all the activities associated with buying, selling or varying life insurance products.

7                     General information does not constitute an implied recommendation

1.                    This clause explains that a person who gives general information or advice to another person, without an analysis of the other persons particular needs, is not deemed to have made an implied recommendation.

2.                    This clause is designed to ensure that the giving of information that is general in nature and is not directed at the particular circumstances of an individual owner, prospective owner, beneficiary, or prospective beneficiary under a group scheme does not constitute an implied recommendation.

8                     Additional operation of the Bill

1.                    This clause provides that a reference in the Bill to a company is limited to companies to which paragraph 51(xx) of the Constitution applies.

9                     Exclusion of certain State insurance

1.                    This clause provides that the Bill does not apply to State insurance that does not extend beyond the limit of the State concerned.

10                 Exclusion of life companies that are friendly societies

1.                    The exclusion of life companies that are friendly societies is to ensure consistency with the operation of Financial Sector Reform (Amendments and Transitional Provisions) Act (No.1) 1999 , which facilitated the transfer of State and Territory regulated financial institutions, including friendly societies, to the Commonwealth regulatory regime.

2.                    Friendly societies continue to be subject to the disclosure obligations contained in Part 4B of the Friendly Societies Code, which is modelled on the fundraising provisions in Part 7.12 of the Corporations Law.  The status quo is maintained in this area of regulation of friendly societies, pending the current review of disclosure obligations applying to financial products under the Corporate Law Economic Reform Program.

11                 Extension to Norfolk Island

1.                    This clause provides for the Bill to cover the Territory of Norfolk Island.

12                 General administration

1.                    This clause provides for the Australian Securities and Investments Commission (ASIC) to have responsibility for the general administration of the Bill.

13                 Application of the Criminal Code

1.                    This clause states that Chapter 2 of the Criminal Code applies to all offences against the Bill.  Among other things, this ensures that all criminal offences under the Bill include a fault element.

14                 Bill not to affect operation of other Acts

1.                    This clause ensures that this Bill does not affect the operation of the Life Insurance Act 1995 , the Insurance (Agents & Brokers) Act 1984 or the Trade Practices Act 1974.

15                 Schedule 1

1.                    This clause provides that the Acts specified in Schedule 1 are amended or repealed as provided for in the Schedule and that items in the Schedule otherwise have effect according to their terms.  The clause ensures correct cross-referencing and between this Bill and other legislation.



PART 2 - DUTIES OF LIFE COMPANIES

OUTLINE OF THE PART

16                 Effect of Part

1.                    This clause sets out the effect of Part 2 which is to ensure that life companies only issue accurate and appropriate information regarding life insurance.  This is achieved by provisions requiring life companies to provide owners and prospective owners of life policies, and group members and prospective group members, with relevant information to allow them to make properly informed decisions regarding whether to engage in a life insurance activity.

2.                    Part 2 also contains measures for providing appropriate redress for people who suffer loss or damage as a result of relying on information that is incorrect, misleading, or from which there are material omissions.  This is achieved by assigning civil liability to the life company and its directors when a consumer has been misled and, where appropriate, for criminal liability when a person gives information produced by a life company that is known to be false or misleading.

17                 Duty of life companies to provide information

1.                    This clause sets out the general duty of life companies to ensure that they provide owners and prospective owners of life policies with relevant information to allow them to make properly informed decisions regarding whether to enter into, vary, continue or discontinue any of those policies.  This clause also applies to members and prospective members of group schemes.

2.                    This measure is designed to help consumers make informed decisions regarding life policies.  It is not intended to introduce a continuous disclosure obligation.  The obligation is not absolute; companies are only required ‘as far as reasonably practicable’ to provide information.

3.                    This clause will not apply where a group member cannot make a choice, whether informed or otherwise, because of the nature of the group scheme or any other reason.  If there are no decisions  that a particular group member is capable of making, then the member cannot reasonably require any information of the kind to which the obligation relates.  The obligation does not, therefore, arise in such cases.

4.                    Contravention of this clause by a life company may lead to directions being given under clause 20.  Companies must also ensure, as far as reasonably practicable, that the information supplied is accurate, is not misleading and there are no material omissions.

5.                    Certain group schemes may be exempted by the regulations.

18                 Disclosure rules

1.                    This clause provides that regulations can prescribe rules concerning the production or provision of information by life companies about policies they issue.

2.                    The rules may cover such matters as producing specified kinds of information about life policies, the form the information must take and the time at which it must be given to the consumer.  The rules may also require a life company to keep records relating to the production or provision of information and to provide ASIC with documents used in particular cases for the purposes of the rules.

3.                    Life companies must comply with the disclosure rules as prescribed.  The requirements of clause 19 are not limited to the disclosures made under clause 18.

19                 ASIC may give directions

1.                    This clause gives ASIC the power to give a written notice to a company if it appears that the company has breached clause 18 or any disclosure rules.  This power is designed to ensure that disclosure requirements are enforceable.

2.                    The written notice may inform the company that ASIC is considering issuing a direction, describe the alleged contravention, invite written submissions regarding whether a direction should be given and specify the period within which the company must respond.  The specified period must be at least 14 days from the date the notice is given.

3.                    Following the specified period, if ASIC is satisfied that a company has breached clause 18 it may issue a direction to a life company requiring it to perform a specified act or cease a specified act.

4.                    The direction takes effect on the day specified, or on the day the direction is given to the company.  A life company is guilty of an offence if it does not comply with the direction and may be liable for a maximum of 300 penalty units.

5.                    Decisions made under this clause to revoke or vary a direction are reviewable decisions under clause 62.

20                 Revocation or variation of directions

1.                    This clause provides that if ASIC believes a direction issued under clause 20 is no longer required or should be varied, then ASIC must, by written notice to the life company, revoke or vary the direction.

2.                    If a life company makes a written request that a direction be revoked or varied, ASIC must make a decision and give the company written notice of that decision.  The company may also appeal such a decision to the Administrative Appeals Tribunal.

21                 ASIC may issue stop orders

1.                    This clause gives ASIC the power to stop a company issuing promotional material if it contains false or misleading information.  ASIC can do this by issuing a written order (a stop order )which directs the company to stop issuing the stated promotional material.  A stop order comes into force when it is made, or at a later time if specified, and remains in force until it is revoked.

2.                    A life company is guilty of an offence if it contravenes a stop order that is in force.

3.                    Decisions made under this clause are reviewable decisions under clause 62.

22                 False or misleading information: civil liability

1.                    This clause sets out the principles of civil liability in a situation where a person suffers damages or loss as a result of relying on false or misleading information that was supplied by a life company for the purposes of encouraging them to engage in a life insurance activity.  In this situation, a person may seek to recover damages in court from the life company and persons who were directors of the life company, when the information was provided to the person.

2.                    In addition to granting damages the court can also, if it thinks necessary in order to do justice between the parties, declare the policy void and direct the company to refund the amount of money that was paid, including interest on that money.  Group policies cannot be voided as this would effect other beneficiaries under the scheme who are unaffected by conduct in contravention of clause 23.

3.                    A person is not liable in an action under this clause if they can prove they took all reasonable steps and exercised due diligence to ensure that the information was correct and contained no material omissions.

23                 Order to disclose information or publish advertisement etc

1.                    This clause provides that if the Court is satisfied that a life company has issued promotional material that is false or misleading in relation to a life policy, then the Court may make an order or orders against the company.  This can only be done if there has been an application by ASIC.

2.                    The Court can make orders requiring the company to disclose at its own expense and in a specified manner, information to the public or a specified person or persons.  The Court can also issue an order requiring the company to issue, at its own expense, promotional material as specified in, or determined in accordance with, the order.

3.                    An order relating to information that is not promotional must specify the kind of information that is required to be disclosed and, if necessary, the person or persons to whom it must be disclosed.

4.                    This clause does not limit the generality of clause 61 which deals with injunctions.

24                 False or misleading information: criminal liability

1.                    This clause provides for criminal liability where a person who, in any information produced by a life company under clause 18, makes a statement which is knowingly false or misleading.    This provision is intended to deter persons from intentionally making false or misleading statements or omitting information in a way that is misleading.

2.                    Persons, such as officers of life companies, will not be criminally liable under this clause for carelessness or negligence.  The provision requires actual knowledge of the deceptive statement or omission.  It will therefore only catch persons who deliberately set out to trick or cheat by making false or misleading statements and omissions.

3.                    The maximum penalty for an offence under this clause is 12 months imprisonment.



PART 3 - CONDUCT OF LIFE COMPANIES AND THEIR LIFE INSURANCE ADVISERS

OUTLINE OF THE PART

4.                    This Part sets out the provisions that govern the conduct of life companies and their life insurance advisers in relation to the giving of insurance advice about life policies.  It sets out: definitions of relevant terms, information that must be included in disclosure statements, information that must be contained in life insurance advice, and civil and criminal liability provisions if clauses are contravened.

25                 Effect of Part

1.                    This clause sets out the effect of Part 3, which is to govern the conduct of life companies and their life insurance advisers, particularly in relation to the giving of life insurance advice.

26                 Definitions

1.                    This clause defines the expressions and terms used in Part 3.

2.                    The term exempt person means a person (included in a class of persons) declared by regulations to be exempt.  A life insurance adviser as defined does not include an exempt person.  As a result of these definitions, persons who might otherwise fall within the scope of the definition of life insurance adviser can be exempted from the requirements applicable to life insurance advisers as specified in regulations.

3.                    The Bill covers advice given by people who were life insurance advisers when the advice was given.  It does not matter if they subsequently stop being life insurance advisers.  The term life insurance adviser is defined to cover:

·       all agents and sub-agents of a life company, whether or not the agency is established by written agreement (whether or not they are authorised to give life insurance advice);

·       all life brokers, where they are acting (for the purposes of this Part) as agents or sub-agents of a life company (whether or not they are authorised to give life insurance advice under the terms of the agency agreement);

·       all persons who are employees of life companies (whether or not they are authorised to give life insurance advice); and

·       all persons authorised by a life company (or authorised by the terms of their employment) to provide advice regardless of whether they are acting beyond their authority in giving advice, so long as the consumer could reasonably expect that they were authorised to give that advice.

27                 Disclosure statements

1.                    This clause sets out the obligations of life insurance advisers to disclose certain information to a client where the life insurance adviser provides an insurance service to that client.  A disclosure statement must be in writing and provided to the client as soon as practicable after the first contact with the adviser.  For example, a disclosure statement should be provided at the initial meeting with the client, or if business is conducted by telephone, the statement should be sent to the client after that first contact.

2.                    The content of the disclosure statement may be prescribed by regulations and may include items such as the name and business address of the adviser, which life companies and brokers are responsible for the adviser’s conduct, the way in which the adviser is remunerated, the types of policies the adviser is authorised to sell, the adviser’s associates and the nature of complaints procedures available to the client.

28                 Life insurance advice must contain certain information

1.                    This clause sets out the information that must be contained in an advice from an adviser to a client.

2.                    The advice must be in writing and contain the name and business address of the adviser, the basis upon which the advice is given, any benefit that the adviser or any of its associates has received or will receive in relation to the giving of the advice, any other interests that an adviser or its associate has which could reasonably be expected to influence the adviser in giving the advice, and any other particulars prescribed by regulations.

3.                    The requirement for advice to be in writing is not intended to preclude telephone advice, provided that the advice is recorded in writing and given to the person.  The advice must also disclose any other particulars as prescribed by regulations.

4.                    Fees or commissions paid, or given directly to the adviser by the client, do not need to be disclosed in the advice document.

5.                    In the case risk insurance policies, subclause 29(7) provides an exemption from the general obligation to set out details of fees or commissions.  Where advice is given in respect of stand alone risk insurance products, no up-front disclosure is required.  However, there is a requirement for the adviser to notify the client of their right to request information about fees, commissions and benefits the adviser will receive in respect of the product being recommended.

29                 Life insurance advice must have a reasonable basis

1.                    This clause specifies that any adviser who gives a person advice must have a reasonable basis for giving that advice.  This requires an adviser to investigate and give consideration to a person’s objectives, financial situation and particular needs.  The adviser must be able to show that they took reasonable steps to obtain this information and then gave it due consideration before giving their advice, based on that consideration.

2.                    Certain kinds of life policies may be exempted from this clause if so prescribed by the regulations.

30                 Life company must not issue or vary life policies in certain cases

1.                    This clause establishes that a life company is guilty of an offence, if the life company issues or varies a policy at the request of a person who has received advice from a life insurance adviser and that advice did not satisfy the requirements of clauses 29 (including the requirement that the advice be in writing) or 30, and the person has not indicated in writing that they did not rely on the advice.

2.                    The purpose of this clause is to enable proper enforcement of the requirements of clauses 30 and 31.

3.                    The penalty for an offence under this clause is 200 penalty units.

31                 Life company’s civil liability if section 29 or 30 is contravened

1.                    The clause provides that a person may take an action in a court to recover an amount of loss or damage incurred as a result of relying on the advice of a life insurance adviser if it can be shown that the advice given did not meet the requirements of clauses 29 or 30 and the person entered into, varied, continued or discontinued a life policy based on that advice and it was reasonable to rely on the advice.

2.                    The clause also sets out the defences that may be used if an action is taken under sub clause 32(1).  The defences available under this clause are not intended to relieve a life insurance adviser from liability if the adviser had not made reasonable enquiries about the client’s needs and circumstances before making the recommendation.

3.                    In a situation where it is alleged that an adviser failed to comply with subclause 29(4) regarding disclosure of benefits, advantages or interests, it is a defence if the life company can show that the adviser who gave the relevant information had no way of reasonably knowing that it was incorrect.

4.                    Under subclause 32(3), it is a defence to an action based on an alleged failure to comply with clause 29 if the life company proves that a reasonable person (in the same circumstances as the person to whom the advice was given) could be expected to have acted in reliance on the advice, even if the adviser had complied with that clause in relation to the advice.

5.                    In addition to other relief granted, the court may also make an order declaring a life policy, other than a group policy, void. A group policy cannot be made void because other group members could be unreasonably affected.  If the court does declare the policy void, it may instruct the life company to repay to the plaintiff money paid to the life company in connection with the policy, including interest on that money.

32                 False or misleading statements etc.: civil liability

1.                    This clause provides that if a person (or group policy owner) suffered damages because they engaged in a life insurance activity on the basis of a statement made by a life insurance adviser and the statement is materially false, misleading or there is a material omission from the statement, then the person may seek to recover the damages by taking action against the life company in court.

2.                    In addition to other relief granted, the court may make an order declaring a life policy, other than a group policy, void.  A group policy cannot be made void because other group members could be unreasonably affected.  If the court does declare the policy void, it may instruct the life company to repay to the plaintiff money paid to the life company in connection with the policy, including interest on that money.



PART 4 - CONDUCT OF LIFE BROKERS AND THEIR LIFE INSURANCE ADVISERS

OUTLINE OF THE PART

3.                    This Part sets out the provisions that govern the conduct of life brokers and their life insurance advisers in relation to the giving of insurance advice about life policies.  It sets out: definitions of relevant terms, information that must be included in disclosure statements, information that must be contained in life insurance advice, and civil and criminal liability provisions if clauses are breached.

33                 Effect of Part

1.                    This clause sets out the effect of Part 4 which is to govern the conduct of life brokers and their life insurance advisers, particularly the giving of life insurance advice.

34                 Application of Part

1.                    This clause sets out that Part 4 does not apply to life brokers where they are acting as an agent or sub-agent of a life company (they would be covered by Part 3).

35                 Definitions

1.                    This clause defines the expressions and terms used in Part 4.

2.                    The term exempt person means a person (included in a class of persons) declared by regulations to be exempt.  A life insurance adviser as defined does not include an exempt person.  As a result of these definitions, persons who might otherwise fall within the scope of the definition of life insurance adviser can be exempted from the requirements applicable to life insurance advisers as specified in regulations.

3.                    The Bill covers advice given by people who were life insurance advisers when the advice was given.  It does not matter that they subsequently stop being life insurance advisers.  The term life insurance adviser is defined to cover:

·       all agents and sub-agents of a life broker, whether or not the agency is established by written agreement (whether or not they are authorised to give life insurance advice);

·       all persons who are employees of life brokers (whether or not they are authorised to give life insurance advice);

·       all persons authorised by a life broker (or authorised by the terms of their employment) to provide advice regardless of whether they are acting beyond their authority in giving advice, so long as the consumer could reasonably expect that they were authorised to give that advice.

 

36                 Disclosure statements

1.                    This clause sets out the obligations of life insurance advisers to disclose certain information to a client where the life insurance adviser provides an insurance service to that client.  A disclosure statement must be in writing and provided to the client as soon as practicable after the first contact with the adviser.  For example, a disclosure statement should be provided at the initial meeting with the client, or if business is conducted by telephone, the statement should be sent to the client after that first contact.

2.                    The content of the disclosure statement may be prescribed by regulations and may include items such as the name and business address of the adviser, which life companies and brokers are responsible for the adviser’s conduct, the way in which the adviser is remunerated, the types of policies the adviser is authorised to sell, the adviser’s associates and the nature of complaints procedures available to the client.

37                 Life insurance advice must contain certain information

1.                    This clause sets out the information that must be contained in an advice from an adviser to a client.

2.                    The advice must be in writing and contain the name and business address of the adviser, the basis upon which the advice is given, any benefit that the adviser or any of its associates has received or will receive in relation to the giving of the advice, any other interests that an adviser or its associate has which could reasonably be expected to influence the adviser in giving the advice, and any other particulars prescribed by regulations.

3.                    The requirement for advice to be in writing is not intended to preclude telephone advice, provided that the advice is recorded in writing and given to the person.  The advice must also disclose any other particulars as prescribed by regulations.

4.                    Fees or commissions paid or given directly to the adviser by the client do not need to be disclosed in the advice document.

5.                    In the case risk insurance policies, subclause 38(7) provides an exemption from the general obligation to set out details of fees or commissions.  Where advice is given in respect of stand alone risk insurance products, no up-front disclosure is required.  However, there is a requirement for the broker to notify the client of their right to request information about fees, commissions and benefits the adviser will receive in respect of the product being recommended.

38                 Life insurance advice must have a reasonable basis

1.                    This clause specifies that any adviser who gives a person advice must have a reasonable basis for giving that advice.  This requires an adviser to investigate and give consideration to a person’s objectives, financial situation and particular needs.  The adviser must be able to show that they took reasonable steps to obtain this information and then gave it due consideration before giving their advice, based on that consideration.

2.                    Certain kinds of life policies may be exempted from this clause if so prescribed by the regulations.

39                 Life broker must not arrange for issue or variation of a life policy in certain cases

1.                    This clause establishes that a life broker is guilty of an offence, if the broker arranges for issue or variation of a policy at the request of a person who has received advice from a life insurance adviser and that advice did not satisfy the requirements of clauses 38 (including the requirement that the advice be in writing) or 39, and the person has not indicated in writing that they did not intend to rely on the advice.

2.                    The purpose of this clause is to enable proper enforcement of the requirements of clauses 38 and 39.

3.                    The penalty for an offence under this clause is 200 penalty units.

40                 Life broker’s civil liability if section 38 or 39 is contravened

1.                    The clause provides that a person may take an action in a court to recover an amount of loss or damage incurred as a result of relying on the advice of a life insurance adviser, if it can be shown that the advice given did not meet the requirements of clauses 38 or 39 and the person entered into, varied, continued or discontinued a life policy based on that advice and it was reasonable to rely on the advice.

2.                    The clause also sets out the defences that may be used if an action is taken under sub clause 41(1).  The defences available under this clause are not intended to relieve a life insurance adviser from liability if the adviser had not made reasonable enquiries about the client’s needs and circumstances before making the recommendation.

3.                    In a situation where it is alleged that an adviser failed to comply with subclause 38(4) regarding disclosure of benefits, advantages or interests, it is a defence if the life company can show that the adviser who gave the relevant information had no way of reasonably knowing that it was incorrect.

4.                    Under subclause 41(3), it is a defence to an action based on an alleged failure to comply with clause 38 if the life broker proves that a reasonable person (in the same circumstances as the person to whom the advice was given) could be expected to have acted in reliance on the advice, even if the adviser had complied with that clause in relation to the advice.

5.                    In addition to other relief granted, the court may make an order declaring a life policy, other than a group policy, void.  A group policy cannot be made void because other group members could be unreasonably affected.  If the court does declare a policy void it may instruct the life broker to repay to the plaintiff money paid in connection with the policy, including interest on that money, less any amounts paid by the broker to the life company under section 27 of the Insurance (Agents and Brokers) Act 1984 (IABA).

6.                    The court may also make other orders designed to put the plaintiff, the life company and the life broker back in the position they were in before the policy was made void.  These orders arise from the fact that, at the time the policy is made void, money paid by the plaintiff in connection with the policy may be in either the possession of the life company or the life broker.  Generally, money paid by a plaintiff to a broker in connection with a policy may, under section 27 of IABA, be retained by the broker for up to 90 days.

41                 False or misleading statements etc.: civil liability

1.                    This clause provides that if a person (or group policy owner) suffered damages because they engaged in a life insurance activity on the basis of a statement made by a life insurance adviser of the life broker and the statement is materially false or misleading or there are material omissions, then the person may seek to recover the damages by taking action against the broker in court.

2.                    In addition to other relief granted, the court may also make an order declaring a life policy, other than a group policy, void.  A group policy cannot be made void because other group members could be unreasonably affected.  If the court does declare a policy void  it may instruct the life broker to repay to the plaintiff money paid in connection with the policy, including interest on that money, less any amounts paid by the broker to the life company under section 27 of IABA.

3.                    The court may also make other orders designed to put the plaintiff, the life company and the life broker back in the position they were in before the policy was made void.  These orders arise from the fact that, at the time the policy is made void, money paid by the plaintiff in connection with the policy may be in either the possession of the life company or the life broker.  Generally, money paid by a plaintiff to a broker in connection with a policy may, under section 27 of IABA, be retained by the broker for up to 90 days.



PART 5 CODE OF PRACTICE FOR THE LIFE INDUSTRY

OUTLINE OF THE PART

4.                    This part provides for the establishment of a Code of Practice for the Life Insurance Industry.  It also sets out ASIC’s powers to give directions if it appears that a life company or broker has contravened a provision of the Code.

42                 Effect of Part

1.                    This clause sets out the effect of Part 5, which is to provide for the establishment of a Code of Practice for the Life Insurance Industry applying to life companies, life brokers and life insurance advisers.

43                 Establishment of the Code

1.                    This clause allows regulations to make provision for a Code of Practice for the Life Insurance Industry and sets out the matters that may be covered in the Code.

44                 ASIC may give directions

1.                    This clause gives ASIC the power to give a written notice to a life company or broker if it appears that the life company or broker has contravened the Code.  This power is designed to ensure that the Code is enforceable.

2.                    The written notice must inform the life company or broker that ASIC is considering issuing a direction, describe the alleged contravention, invite written submissions regarding whether a direction should be given and specify the period within which the life company or broker must respond.  The specified period must be at least 14 days from the date the notice is given.

3.                    Following the specified period, if ASIC is satisfied that a life company or broker has breached the Code, ASIC may issue a direction to a life company or broker requiring it to perform a specified act or cease a specified act.

4.                    The direction takes effect on the day specified or on the day the direction is given to the life company or broker.  A life company or broker is guilty of an offence and subject to a penalty of 300 penalty units if it does not comply with the direction.

45                 Revocation or variation of directions

1.                    This clause provides that if ASIC considers that a direction issued under clause 45 is no longer required or should be varied, then ASIC must, by written notice to the life company or broker, revoke or vary the direction.

2.                    If a life company or broker makes a written requests that a direction be revoked or varied, ASIC must make a decision and give the life company or broker written notice of that decision.

3.                    Decisions made by ASIC under this clause are reviewable under clause 62 of the Bill.



PART 6 - COMPLIANCE PROVISIONS

OUTLINE OF THE PART

4.                    This part sets out the compliance provisions that life companies and life brokers must follow under the Bill.  Division 1 requires life companies to have a compliance committee, and prescribes the membership, functions and powers of the committee.  Division 2 contains certain powers under which ASIC can monitor compliance with the Bill by life companies and life brokers and under which ASIC can give directions to life companies and life brokers.

DIVISION 1 - COMPLIANCE COMMITTEES

46                 Obligation of life company to have compliance committee

1.                    This clause provides that a life company must have a compliance committee at all times and allows the life company to name the committee as it chooses.

47                 Membership of compliance committee

1.                    This clause specifies that a member of a compliance committee must be a director of the life company, or a person whose appointment is approved by ASIC on the basis that it will help to promote the efficiency or effectiveness of the compliance committee’s operations.

48                 Functions and powers of compliance committee

1.                    This clause requires that a compliance committee be given functions relating to assisting the company to deal with consumer related issues that arise and ensuring that a proper system of management controls are in place to ensure compliance with this Bill.  Compliance with the Bill includes the disclosure rules and the Code of Practice that may be prescribed by regulations under Part 5 of the Bill.  The committee may be given additional functions if they are consistent with those described.

2.                    A life company must make arrangements to ensure that the compliance committee has sufficient powers to obtain all necessary information from the company to carry out its functions.

3.                    A member of the compliance committee has qualified privilege in respect of any report or statement about the company’s operations made by or on behalf of the committee, or a member of the committee, to the directors of the company.  This privilege is in addition to any privilege conferred on a person by any other law.



DIVISION 2 - MONITORING LIFE COMPANIES AND LIFE BROKERS

49                 Purpose of Division

1.                    This clause explains the purpose of the Division which is to give ASIC the means to monitor the extent to which companies and brokers are complying with the Bill and any directions given under it.

50                 Definition

1.                    This clause defines authorised person as somebody appointed under clause 52 of the Bill.

51                 Appointment of authorised persons

1.                    This clause allows ASIC to appoint, in writing, a staff member of ASIC (defined in clause 4 of the Bill) or a staff member of the Australian Prudential Regulatory Authority (APRA) as an ‘authorised person’ for the purposes of this Division.  ASIC will be required to issue a photographic identity card to an ‘authorised person’.

2.                    An ‘authorised’ person is one who will be entitled, under clause 54 of the Bill, to inspect, take extracts from, or make copies of, any records produced under that clause.  An ‘authorised person’ will also be entitled, under clause 56 of the Bill, to enter onto premises with the consent of the occupier.

52                 Requirement to give information to ASIC

1.                    This clause provides that ASIC may issue a written notice to a person requiring that they give to ASIC information about any matter relating to the business of a company or broker, being information that is in the person’s possession or is known to the person.  The person must provide the information.  The notice must specify a reasonable time and place within which the person must provide the information.  The clause also specifies that a person is entitled to reasonable compensation for making copies of documents to comply with a notice.

2.                    A failure to comply with a notice is an offence with a penalty of 30 penalty units.

3.                    A decision by ASIC to give a notice under this clause is a reviewable decision under clause 62 of the Bill.

53                 Requirement to produce records

1.                    This clause allows ASIC to give a written notice directing a person to produce to ASIC or an authorised person (see clause 52) any records relating to the affairs of a specified life company or life broker. The written notice must specify a reasonable time and place for this to occur.

2.                    ASIC or an authorised person may inspect and make copies of any record produced for the purposes of this clause.  If the information that constitutes the record is stored electronically then it is the responsibility of the person to produce the record in document form for the purposes of this clause.

3.                    Failure to comply with a written notice made under this clause is an offence with a penalty of 30 penalty units.

4.                    A decision by ASIC to give a notice under this clause is a reviewable decision under clause 62 of the Bill.

54                 Self-incrimination

1.                    This clause provides that a person is not excused from giving information under clauses 53 or 54 on the ground that the information may tend to incriminate the person or make the person liable to a penalty.  The clause also provides, however, that any information produced by a person under clauses 53 and 54, and any information obtained as a direct or indirect result of such information that is produced, is not admissible as evidence against the person in any proceeding.

55                 Access to premises

1.                    This clause allows ASIC or an authorised person (see clause 52), with the consent of the occupier, to enter any premises which ASIC has reasonable cause to believe contains records relating to the affairs of a life company or life broker.  ASIC or the authorised person may inspect the records and take extracts from or make copies of the records.

2.                    This clause also provides that an authorised person must not enter onto or remain on premises if he or she fails to produce his or her identity card when asked to do so by the occupier.  In such circumstances, the authorised person is also not permitted to inspect, take extracts from, or make copies of the records.



PART 7 - MISCELLANEOUS

OUTLINE OF THE PART

3.                    This part contains a number of miscellaneous provisions regarding the operation of this Bill.  It includes items such as the jurisdiction of the Courts, powers of injunction, review of decisions, representative actions by ASIC and the making of regulations under the Bill.

56                 Statistics

1.                    This clause provides that ASIC must collect statistics (as prescribed by the regulations) relating to matters prescribed by or arising out of the operation of the Bill.

2.                    A life company or broker must give ASIC the information it reasonably requires to enable it to collect statistics.

3.                    ASIC may publish any statistics collected under this clause and set fees for publications it produces under this clause.

57                 Jurisdiction of courts under this Bill

1.                    This clause explains that a prescribed provision means a provision of this Bill that allows an action to be initiated in a court of competent jurisdiction.

2.                    The clause confers jurisdiction on the Federal court to hear and determine actions brought under a prescribed provision of this Bill.  Jurisdiction is also conferred  on several courts of the States and Territories to hear actions brought under prescribed provisions, as long as this is consistent with their existing jurisdictional powers.

58                 Transactions not invalidated

1.                    This clause provides that a person’s failure to comply with this Bill or the Life Insurance Code of Practice (see clause 44) does not invalidate any life policy, or any transaction entered into by that person.

59                 Operation of State and Territory laws

1.                    This clause provides that it is the intention of Parliament that this Bill is not to apply to the exclusion of a law of a State or Territory, to the extent that the law is capable of operating concurrently with this Bill.  The clause provides, however, that the Parliament intends that the Bill is to operate to the exclusion of superseded State Acts, or State Acts amending or enacted in substitution for a State Act. This provision directly mirrors section 233 of the Life Insurance Act 1995 .

60                 Injunctions

1.                    This clause details the types of injunctions that are available under the Bill, when they can be used and the scope of the Court’s power in granting injunctions. Only ASIC, or an ‘interested person’ (such a person would include persons whose interests are adversely affected by the conduct of the life company or life broker and may also include representative organisations) may be granted on application an injunction under this clause.

2.                    The Court may grant injunctions where a life company or life broker either has, is, or proposes to engage in conduct in contravention of the Bill, or a direction given by ASIC under the Bill.  The injunction may either restrain the conduct of a life company or life broker, or require the company or broker to do a particular act. The Court may also grant interim injunctions and it may vary or discharge an injunction granted under the clause.

3.                    Injunctions provide a direct remedy against non-compliance.  They enable the Court to directly intervene and deal with contravening behaviour, as opposed to criminal sanctions which generally act as more of a deterrent to behaviour which would contravene the Bill.

61                 Review of certain decisions

1.                    This clause outlines which decisions (specified in subclause (1)) made by ASIC under the Bill are reviewable decisions.  Reviewable decisions must be reconsidered by ASIC on request by a life company or life broker affected by the decision.  The request must be made within 21 days (or a longer period allowed by ASIC) of the decision being made, and must include reasons for the request being made.

2.                    In its consideration of such a request, ASIC may confirm, revoke or vary the decision.  If ASIC chooses to do this, it must give written notice to the affected life company or life broker, setting out the results of its reconsideration and the reasons for confirming, revoking or varying its decision.  A decision is taken to be confirmed by ASIC if ASIC does not confirm, vary or revoke a decision within 60 days of receipt of a request to reconsider a decision.

3.                    If, after this process, a life company or life broker remains dissatisfied with a decision, an application may be made to the Administrative Appeals Tribunal for a review of the decision that ASIC has confirmed or varied.

62                 Constitution and procedure of Tribunal

1.                    This clause sets out the constitution and procedures of the Administrative Appeals Tribunal for the purposes of reviewing a reviewable decision as defined in clause 62 of the Bill.  The clause provides that the Tribunal is to be constituted by a presidential member and two non-presidential members to review a reviewable decision.  The President of the Tribunal must ensure that the non-presidential members have special knowledge or skill in relation to life insurance business, but such members must not be a director or employee of a company or body carrying on life insurance business or insurance business.

63                 Institution of proceedings for offences

1.                    This clause provides that any proceedings for an offence under the Bill must be instituted within five years of the alleged offence, or at a later time with the Treasurer’s consent.  The institution of proceedings against a company for an offence under this Bill does not prevent the institution of proceedings for the judicial management or winding up of the company, on a ground that relates to the matter that constitutes the offence.

64                 ASIC may begin and carry on certain civil actions

1.                    This clause provides that ASIC may, if it thinks it would be in the public interest to do so, bring an action in a person’s name under the clauses specified in the clause.  ASIC may only bring an action in the name of a natural person with the person’s written consent.

2.                    If ASIC brings any action under this clause in a person’s name, the person is not liable to pay any costs arising out of the action.

65                 Regulations

1.                    This clause allows the Governor-General to make regulations not inconsistent with the Bill, in respect of matters required or permitted by the Bill to be prescribed, or for the carrying out of, or giving effect to the Bill.



Schedule 1 - Amendment of the Australian Securities and Investments Commission Act 1989

 

Item 1  After paragraph 12A(1)(e)

This item amends the Australian Securities and Investments Commission Act 1989 to include the Bill as a non-national scheme law for the purposes of the functions and powers of ASIC.  This has the effect of conferring on ASIC the powers and functions of this Bill.

 

Item 2  Financial Sector Reform (Amendments and Transitional Provisions) Act (No.1) 1999

This item repeals cross references in the Financial Sector Reform (Amendments and Transitional Provisions) Act (No.1) 1999 that will be made redundant by this Bill.