CPA’s woes worsen – with members’ limited liability at risk

As heads continue to roll at the CPA, there is more bad news afoot for CPA members.

On 7 October 2017, all public practitioner members of the CPA will lose the protection of their Professional Standards Scheme. This means that they will no longer have the benefit of liability caps, as provided for under the scheme, and may leave members with uninsured exposure to claims which exceed current levels of insurance.

The Professional Standards Council, which approves such schemes, has confirmed that for “reasons of concern about conflicts of interest arising from the establishment and structure of CPA Australia Advice” they will not renew the CPA’s current scheme, which expires nationally on 7 October 2017.

The PSC has received a new application from CPA Australia, but it is too late to guarantee that there won’t be a lapse in the scheme’s continuity for CPA members.

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ASIC industry funding model introduced

Ann-Marie_ColemanLate last year the Government announced it would introduce an industry funding model for ASIC (our previous update on this can be found here). The ASIC Supervisory Cost Recovery Levy Bill 2017 and related bills have now passed. Effective from 1 July 2017, ASIC’s regulatory costs will be recovered through annual levies from all industry sectors regulated by ASIC.

The amount of the levy will be worked out in accordance with regulations. Whilst the relevant regulations have not yet been passed, the draft regulations apply either a flat or a graduated levy to entities in each industry subsector regulated by ASIC. The draft regulations:

  • establish the criteria for determining the subsectors an entity is a part of;
  • set out the formulas and metrics to be used for calculating the amount of levy payable for entities in each subsector;
  • provide for ASIC to make an annual legislative instrument specifying information about each of the regulated industry subsectors that must be used in the formulas; and
  • prescribe certain amounts that should not be included as part of ASIC’s regulatory costs.

The regulations are expected to be passed shortly, ahead of the commencement of the model on 1 July 2017.

Further information can be found here.

ASIC sets commission caps and clawback amounts for life insurance

Ann-Marie_ColemanIn February this year the Corporations Amendment (Life Insurance Remuneration Arrangements) Act 2017 (the Act) was passed by Parliament, followed by the associated regulations. Our updates on these can be found here and here. The Act removed the exemption from the ban on conflicted remuneration for commissions paid in relation to certain life insurance products. The Act also enabled the Australian Securities and Investments Commission (ASIC) to allow commissions to be paid if requirements around commission caps (benefit ratio requirements) and clawbacks are met.

ASIC has now made ASIC Corporations (Life Insurance Commissions) Instrument 2017/510 (ASIC Instrument) which allows commissions to be paid for the sale of life insurance, but sets limits on the commissions and contains clawback requirements if the policy is cancelled within its first two years. The ASIC Instrument will commence on 1 January 2018. Read the rest of this entry »

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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