New laws place real estate agents under the hammer

natasha_stojanovichOn 1 May, amendments to the Estate Agents Act 1980 (Vic) took effect in Victoria. The new legislation is designed to address the allegedly widespread practice of underquoting in the Victorian real estate industry. The new laws strengthen existing prohibitions on underquoting, and apply only to residential properties.

The legislation requires, amongst other things:

  • The estimated selling price to be reasonable, and within a 10% range, i.e. $500,000 to $550,000
  • The estimated selling price not to be less than the seller’s asking price, or a price in a written offer which the seller has rejected
  • Agents to change the estimated selling price if it is no longer reasonable

Agents who do not comply with the new laws may face fines in excess of $30,000. For more serious offences, agents also risk losing any commission received for the sale of a property. The new laws only apply to sales authorities signed on or after 1 May 2017.

We expect to see more real estate agents being prosecuted in Victoria as a result of the changes and will keep a close eye on any increase in notifications/claims for future updates.

Life insurance remuneration regulations passed

Sophie DevittFollowing on from our previous update regarding the new life insurance remuneration arrangements, the Corporations Amendment (Life Insurance Remuneration Arrangements) Regulations 2017 (Regulations) have now been passed.

The Regulations will take effect from 1 January 2018, the same date as the Corporations Amendment (Life Insurance Remuneration Arrangements) Act 2017 (Act).

The Act removed the exemption for life risk insurance products whereby a benefit is not conflicted remuneration if no financial advice in relation to the product has been given to the person in the last 12 months. This was purposely done to allow the Regulations to prescribe circumstances in which benefits in relation to life insurance are conflicted remuneration even where the circumstances do not involve the provision of financial product advice.

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ASIC Report into financial advisers

0chris_LisicaAs part of its Wealth Management Project, Australian Securities and Investments Commission (ASIC) has released its report into how effectively Australia’s largest financial institutions oversee their financial advisers. The report is based on a 20-month project instigated by information received by ASIC about non-compliant advice, as well as public concerns about wider problems in large advice firms.

The full report is structured in three key phases and can be accessed here.

Phase 1: How the Financial Institutions Identified and Dealt with Non-Compliant Conduct by Advisers

ASIC found between 1 January 2009 and 30 June 2015:

  • financial institutions relied heavily on information from adviser audits and customer complaints to identify non-compliance
  • there were significant delays in reporting non-compliant conduct by advisers to ASIC. In fact, almost half of non-compliant advisers had not been notified to ASIC until AFS licensees did so as part of this project.

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Senate Inquiry into ‘non-confirming’ building products is wrapping up

natasha_stojanovichOn 23 June 2015, the Senate commenced a wide-ranging an inquiry into the use of ‘non-conforming’ building products (being products and materials that do not meet required standards). The inquiry was launched following a 2014 fire in a Victorian apartment complex involving the use of aluminium composite panelling. The due date for reporting has been extended several times, and the report is now due to be released on 25 May 2017. The long awaited and much anticipated report will address:

  1. The economic impact of non-conforming building products on the Australian building and construction industry
  2. The impact of non-conforming building products on:
  • industry supply chains
  • workplace safety
  • costs passed on to customers, including any insurance costs
  • the quality of Australian buildings.
  1. Potential regulatory reform to ensure that building products conform to Australian standards, including a consideration of:
  • enforcement of existing regulations
  • independent assessment systems
  • screening of imported products
  • penalties for use of non-conforming building products.
  1. The illegal importation of products containing asbestos.

We will be monitoring developments with interest, as the report is likely to have wide ranging implications for the building and construction industry. We will be reporting further once the report is released on 25 May 2017.

The Victorian Building Authority fires up for further audits

natasha_stojanovichFollowing the Lacrosse fire in Melbourne’s Docklands in late 2014, the Victorian Building Authority (VBA) conducted an audit of non-compliant wall cladding systems of high rise buildings in inner city Melbourne. By way of background, the Lacrosse building was clad in aluminium composite panelling, and it is alleged that the panelling (with a combustible core) contributed to the fire’s dramatic spread up the exterior façade of the building, causing significant property damage.

The VBA’s audit found a 51% rate of non-compliance, albeit only two buildings were required to carry out rectification work. The findings, which were fairly controversial, left building owners with ‘non-compliant’ buildings which were safe to occupy, in legal limbo.

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A bird set loose

Clancy ODonovanIn Wayland v Bird [2017] NSWCA 26, the NSW Court of Appeal (NSWCA) held a professional indemnity insurer should not be joined under section 6(4) of the Law Reform (Miscellaneous Provision) Act 1946 (NSW) (Act), to a proceeding in which its insured was the defendant, in circumstances where it was entitled to refuse indemnity due to prejudice caused by the insured – notwithstanding there was an arguable case the insurance policy responded to the Claim (as defined below).

In July 2013, Mr and Mrs Wayland (Waylands) sued Mr Bird in the District Court of NSW alleging they had suffered loss and damage as a result of Mr Bird’s breach of contract and negligent provision of pest inspection and control services (claim). Mr Bird consistently failed to cooperate with his professional indemnity insurer, Pacific International Insurance Limited (Pacific), particularly, by failing to provide its lawyers with necessary information and instructions to enable them to file a defence on his behalf. In May 2015, the Waylands filed a motion seeking leave to join Pacific to the proceeding pursuant to section 6(4) of the Act, however, the primary judge dismissed the application, finding Pacific was entitled to refuse indemnity to Mr Bird and section 6(4) of the Act was not enlivened.

On appeal, the NSWCA affirmed the primary decision, finding it was clearly open to the primary judge to conclude Pacific might withhold indemnity if its ability to defend the proceedings had been prejudiced by Mr Bird’s lack of cooperation and this, while not necessarily determinative, was an appropriate matter to inform the court’s discretion as to the grant of, or refusal to grant, leave.

Bill on conflicted remuneration for life insurance passed

Sophie DevittThe Corporations Amendment (Life Insurance Remuneration Arrangements) Bill 2016 (Bill) has passed both Houses and will take effect from 1 January 2018. After originally lapsing in April 2016, the Bill was reintroduced late last year with minor changes.

The Bill will have a significant impact on life insurance brokers and represents the government’s response to a number of investigations into the life insurance industry.

Change to exemption against conflicted remuneration ban

The Bill amends the Corporations Act to remove the exemption against the ban on conflicted remuneration for benefits paid in relation to certain life insurance products. Conflicted remuneration is a benefit which could reasonably be expected to influence the choice of financial product recommended, or the financial product advice given, to retail clients.

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The world catches up to securities class actions

Belinda_RandallMany (especially European) jurisdictions eschew the term ‘class actions’, preferring the more genteel descriptors ‘collective investor action’ or ‘collective redress’. Despite the different terminology, the statistics show that the globalisation of securities class actions is taking hold and the trend is set to increase. This trend will have wide ranging implications on the future of D&O claims internationally, according to leading US commentator Kevin LaCroix (of the D&O Diary fame), who spoke at DLA Piper’s third annual Insurance Symposium in Sydney last week.

The rise of collective investor actions outside of the US is most prominent in the UK, Netherlands and Denmark. There is also increasing activity in France, Germany and Sweden. Not to forget the introduction of class action procedures in Thailand from December 2015 (which is significant, given that most legal systems in Asia have historically not supported class actions against companies – where D&O insurance premiums have remained low as a result). Why is the world catching up to the longstanding US dominance in the class actions space? According to LaCroix, there are a few key factors driving this.

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Senate Signs off on Financial Adviser Reforms – Changes to Claim Volume/Risk Profile Ahead?

Belinda_RandallLast Week the Senate passed the Corporations Amendment (Professional Standards of Financial Advisers) Bill 2016 and paved the way for wide ranging reforms (and increased compliance obligations) in the financial advisory industry. The new regime starts on 1 January 2019 and includes the following reforms:

– Compulsory education requirements for both new and existing financial advisers.
– Supervision requirements for new advisers.
– A code of ethics for the industry to apply from 1 January 2020.
– An exam that will represent a common benchmark across the industry.
– An ongoing professional development component.

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ASIC reveals ‘hot spots’ for the insurance industry in 2017

Benjamin HineLast week Greg Medcraft, the chairperson of the Australian Securities and Investments Commission (ASIC), delivered a speech to the Insurance Council of Australia Annual Forum on the current insurance environment and ASIC’s priorities for the coming year.

Current environment

The speech commenced by noting that 2016 was an eventful year for the insurance industry.

In particular, Medcraft noted the impact of technology and social media and the impact that technology is having on consumer empowerment. Consumer expectations are changing and the impact of social media means that consumers are able to express themselves regardless of media interest.

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