The Australian Securities and Investments Commission (ASIC) today announced relief for licensees from the authorisation requirements for distributors of general insurance products.

The relief, which is provided under ASIC Class Order [CO 05/1070] General insurance distributors,allows Australian financial services licensees the option to appoint people to deal in general insurance products on their behalf, without having to appoint them as authorised representatives.

Under the relief, the licensee will be responsible for the activities of distributors they appoint under the relief and the distributors must tell retail clients who they act for, what remuneration they get and how retail clients can access the licensee’s dispute resolution system.

In August 2005, ASIC released a consultation paper, inviting comments on proposed relief for distributors of general insurance products. This consultation paper was the first step in ASIC’s project implementing Refinement Proposal 12.2 of the Federal Government's proposals paper Refinements to Financial Services Regulation (2 May 2005): see IR 05-44 ASIC consults on authorisation requirements for general insurance arrangers (4 August 2005). In finalising its relief for distributors of general insurance products, ASIC has taken into account submissions received in response to this consultation paper. The release of [CO 05/1070] completes ASIC’s work on Refinement Proposal 12.2.

ASIC's Director of Policy and Research Mark Adams said the intended outcome of Refinement Proposal 12.2 is to promote access to general insurance products for consumers, while maintaining consumer protection.

‘The relief announced today will support this outcome by providing AFS licensees with an alternative to the authorised representative regime. This alternative regime removes some administrative processes and costs,’ Mr Adams said.

‘Consumers who deal with distributors appointed under this relief will still have adequate protections,’ he said.

Further details about the application of [CO 05/1070] are set out in the Attachment to this information release.

End of release

Attachment to ASIC Information Release 05/59: ASIC offers general insurance dealers choice on how to appoint their distributors

Background and application of [CO 05/1070]

ASIC Class Order [CO 05/1070] allows Australian financial services (AFS) licensees, who are authorised to deal in general insurance products, to appoint distributors to deal in these products on their behalf without the need to appoint the distributors as authorised representatives.

The class order provides an alternative to the authorised representative regime. It does not amend or remove the current law applicable to authorised representatives. Likewise, the class order does not affect licensing exemptions in the Corporations Act 2001 (the Act), such as the ‘clerks’ and ‘cashiers’ exemption (s766A(3) of the Act) or the referral licensing exemptions (regulations 7.6.01(1)(e) or (ea)).

Who can be appointed as a distributor?

A number of participants are involved in the distribution of general insurance products. General insurance product issuers distribute their own products. General insurance products are also distributed by insurance brokers, underwriting agents, advisers and participants who are not traditional participants in the financial services industry, such as, travel agents, car dealers and real estate agents. An AFS licensee, who is authorised to deal in general insurance products, can appoint these people as distributors under the class order, provided those people are not authorised representatives of the AFS licensee. (AFS licensees whose distributors are currently authorised representatives can take advantage of the class order, but they will have to revoke the appointment of those distributors as authorised representatives before they can appoint them as distributors under the class order.)

A body corporate appointed as a distributor under the class order can, with the written consent of the AFS licensee, sub-authorise other distributors. The AFS licensee may give written consent to a body corporate distributor to sub-authorise a specified individual or a specified class of individuals (the membership of which might change from time to time). A distributor who is not a body corporate cannot, in that capacity, authorise individuals to act a distributor on behalf of the AFS licensee.

A person can act as a distributor of more than one AFS licensee. There is no requirement under the class order that an AFS licensee cross-endorse the appointment of one of its distributors by another AFS licensee.

What can a distributor do?

Distributors operating under the class order can only deal; they cannot provide advice. The class order covers dealing in general insurance products and bundled consumer credit insurance products (i.e. consumer credit insurance products that include a life insurance component.)

What obligations are imposed on the AFS licensees?

To benefit from the proposed relief, the AFS licensee must take reasonable steps to ensure retail clients are given information about:

• the availability of the AFS licensee’s dispute resolution system;
• the capacity in which the distributor is acting; and
• the remuneration received, or to be received, by the distributor.

This information can be included in the AFS licensee’s Financial Services Guide (FSG), if the distributor provides the FSG to the retail client, or it can be included in a separate document to be given to the retail client by the distributor.

An AFS licensee will be responsible for the distributors it appoints. The class order does not alter the AFS licensee’s obligation to ensure its distributors are adequately trained and supervised, and to take reasonable steps to ensure distributors comply with the financial services law.

ASIC considers that an AFS licensee’s general obligations also require that they keep a record of distributors they appoint and, in response to reasonable inquiries, advise the public whether or not a person is one of their distributors.

What are the benefits of the class order?

The relief provides the following benefits:

• AFS licensees will not be required to lodge with ASIC notifications about appointment, changes in details and revocations of appointment of distributors. This will save time and costs for AFS licensees.
• Distributors will not be required to provide their own personalised FSGs. This saves on publications costs.
• There will be no need for AFS licensees to comply with the cross-endorsement process in s916C when they appoint distributors. This saves time and costs.

These savings may encourage appointment of more distributors of general insurance.

When will the class order commence?

The class order will commence on the date it is registered under the Legislative Instruments Act 2003. The class order will be registered when it is registered on the Federal Register of Legislative Instruments (FRLI) in electronic form. The FRLI may be accessed at http://www.frli.gov.au.

Download a copy of:

• Class Order [CO 05/1070] General insurance distributors
• Regulation impact statement for [CO 05-1070]