Important changes affecting the financial services industry, including insurance brokers will be implemented over the next 12 months.
Australian Financial Complaints Authority – AFCA
Arrangements are being made for the Financial Ombudsman Service (FOS) to transition into a new body will be known as Australian Financial Complaints Authority (AFCA), which will be fully operational under new terms of reference from 1 November 2018.
At the present time, all Australian Financial Services Licence holders must be members of an external dispute resolution scheme. All insurance brokers are members of FOS for dispute resolution purposes.
Although it remains to be officially confirmed, the National Insurance Brokers Association (NIBA) understands that from 1 July 2018, AFS licence holders will become members of AFCA – not FOS – but disputes will continue to be handled under the existing FOS Terms of Reference and existing FOS procedures.
The effect of this change is that AFS licence holders would have paid a single membership fee to FOS for the 2017/2018 financial year, and they will pay a single membership fee for AFCA membership for the 2018/2019 financial year. The name will change, the legal entity operating the dispute resolution scheme will change, but all other things will continue to operate as at present until 31 October 2018.
NIBA has indicated that the fee for membership of AFCA is not known yet. From 1 November 2018, the new AFCA arrangements will take effect, administered by the new entity under new Terms of Reference. Procedures for resolving disputes are expected to be similar to those operating at present for general insurance broking disputes.
The main change is that for insurance broking disputes lodged on or after 1 November 2018, AFCA will be able to award compensation up to $250,000 – an increase from the current $170,000 compensation limit. There had been suggestions that broking disputes should be the same as other insurance disputes, where the compensation limit will be $500,000. After extensive representations and lobbying NIBA, was able to convince the Government that a lower compensation limit was appropriate for insurance broking disputes.
NIBA CEO, Dallas Booth has advised, “All Member Principals should ensure that their professional indemnity insurance covers them for the higher compensation limit of $250,000, which will apply from 1 November 2018.”
The Federal Government is implementing a cost recovery program whereby the financial services industry will be levied to cover ASIC’s regulatory and related activities.
ASIC has recently published information which sets out the likely level of fees that will be recovered across the industry.
For insurance brokers, the levy will have three components:
This fee will depend on the type of company that holds the AFS licence.
Listed corporations will pay a minimum fee of $4,000.
Unlisted public companies will pay a fee of $321.
Large proprietary companies will pay a fee of $868.
Small proprietary companies will pay a fee slightly higher than the current annual review fee paid to ASIC.
Financial Advice Sector
AFS licence holders that provide personal advice on life risk products, investment and superannuation products will pay a minimum fee of $1,500 plus a fee for each advisor listed on the ASIC Advisor Register.
AFS licence holders that give personal advice on general insurance products will pay a flat fee of $719.
AFS licence holders that provide general advice only will pay a flat fee of $2,058.
AFS licence holders that provide personal advice to wholesale clients only will pay a flat fee of $596.
Insurance product distributors, which includes insurance brokers, will pay a flat fee of $790.
Risk Management Product Providers
An AFS licence holder that provides products for managing financial risk will pay a flat levy of $5,168.
NIBA expects the majority of insurance broking firms dealing with general insurance business only will pay a levy of around $2,000 per AFS licence under this arrangement. NIBA lobbied extensively during the preparation of these fees to ensure that the bulk of the ASIC cost recovery was paid by those firms who receive the greatest attention from the regulator. We believe we have achieved this outcome for our members.
What happens next?
AFS licence holders will receive a letter from ASIC in June or July, requiring them to log on to a new ASIC Funding portal, and provide or confirm company information held on that portal. This will need to take place between July and September 2018, and each year thereafter. NIBA understands that the company information will be pre-populated wherever possible.
A number of steps will then occur behind the scenes, and AFS licence holders will receive their first ASIC Funding invoices in February 2019, and annually thereafter.