Presentation to AURIMS

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Presentation to AURIMS

• Financial Services Reform Act 2001
  andImplications for University Insurance
  Officers
• Presented by
• Jodie Nicholls Mona Nainie

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Objectives

• To help university insurance officers understand
  complex areas of financial services reform law
• To do this, we will discuss key themes and
  practical examples of FSR law in this area, and
  assist in risk management of decision making that
  can bring universities within the regulatory
  environment of the FSRA
• Necessarily, this should not be taken to be
  comprehensive treatment of FSR law or specific
  advice. The complexity of this area of law
  requires each fact scenario to be analysed on a
  case by case basis

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Introduction

• Single Licensing and Disclosure Scheme Regime
• Impacts all Financial Services Providers
  (including General Insurance Companies) and the
  marketing and distribution of financial products
• Rationale is greater accountability and
  adaptability in the financial services industry
  and to provide consistent and comparable
  disclosure in relation to financial products and
  services (including advice)
• The reforms of the insurance industry do regulate
  traditional players in the industry

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Commencement Provisions

• Commencement 1 March 2002 (but 2 year transition)
• New and existing entities providing financial
  services need an Australian Financial Services
  Licence
• FSR disclosure obligations are additional to any
  other legislative disclosure obligations
• Insurance (Agent and Brokers) Act 1994 replaced
• Insurance Contract Act 1984 amended

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Key Themes of FSRA

• Three key themes to remember
• Activities trigger need for entity to be licensed
  (e.g. advising, issuing, arranging, trading), if
  they relate to a financial product
• Nature of product may require product to be
  regulated under Corporations Act - e.g.
  registered managed investment schemes
• Nature of recipient affects the regulation of the
  documentation surrounding the supply of a service
  or sale of a product (wholesale / retail /
  internal)

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Key Themes of FSRA (contd)

• Remember, if activity requires a licence, it does
  not matter if
• product is not licensed or
• nature of recipient allows lower level
  documentation

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Definitions - Financial Product

• Financial product and financial service are
  broad definitions, designed to be flexible
• A financial product is a facility through which a
  person
• makes a financial investment or
• manages financial risk or
• makes non-cash payments
• General insurance products are specifically
  included in definition. Essentially is any
  contract of insurance that is not
• life insurance
• financial insurance
• employment related insurance
• the concept of finance

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Definitions - Financial Service

• Financial Service - person who provides a
  financial service is generally taken to be
  carrying on a financial services business and
  therefore requires an AFSL in order to provide
  the financial service.
• An entity that does either of the following
  activities, is providing a financial service
• (a) providing financial product advice
• (b) dealing in a financial product (ie
  issuing, arranging, trading etc)

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Definitions - Financial Service

• Financial Product Advice is provided where an
  entity provides a recommendation or statement of
  opinion or report that is intended to influence a
  person in making a decision or such conduct can
  be reasonably regarded as having such influence
• Dealing in a Financial Product is to carry out
  activities such as applying for or acquiring a
  financial product, issuing a financial product,
  varying or disposing of a financial product and
  arranging for a person to engage in or to bring
  about a dealing in a financial product
• Many people underestimate ASICs interpretation
  of the width of recommendation and arranging

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Exemptions from FSRA Regime

• The relevant exemptions to being licensed, to
  what constitutes a financial product and to
  what constitutes dealing in a financial
  product, are as follows
• (a) Insurance services provided to the
  universitys subsidiaries and controlled
  entities unlikely to trigger licensing
  requirements
• (b) Provision of a financial service (i.e.
  financial product advice or dealing in a
  financial product) by a university to a related
  body corporate is exempt from licensing
  requirements

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Exemptions from FSRA Regime (contd)

• (c) Provision of an insurance contract by a
  university to its employees is not considered
  to be a financial product and therefore does
  not amount to the provision of a financial
  service. Does not trigger the licensing
  requirements
• (d) Provision of a prepared document is not
  considered to be a financial product and
  therefore does not amount to the provision of a
  financial service. Does not trigger the licensing
  requirements. Who prepares document is still
  on issue.
• (e) Extending the universitys insurance cover
  to entities such as student associations, and
  affiliated organisations etc. is not
  considered to be dealing in a financial
  product where the university does not
  separately arrange for cover for such entities or
  take a fee

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Examples of FSRA Regime

• Examples of insurance related activities that
  universities undertake in the course of ordinary
  business. Do any exemptions apply?

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FSRA - Examples (contd)

• University staff giving information to staff,
  students and others concerning the scope of cover
  under the following University policies, under
  which they may have cover
• Personal Accident policy
• Travel policy
• Motor vehicle policy
• Liability policies Professional Indemnity and
  Medical Malpractice
• Expatriate Health Plans (including for family
  members of staff)
• In-patriate Medical plans
• This is university as insured

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FSRA - Examples (contd)

• University arranging travel insurance for staff
  including
• Visiting and adjunct academics
• Students
• Members of family of staff/students (including
  recommending the coverage - as it is arranged
  on a blanket basis.)
• Contractors
• Voluntary workers/external committee members
• Query - university as insured or for others?

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FSRA - Examples (contd)

• The University accepting an excess (of say 3000)
  and paying claims such as
• NonMedicare expenses (in Australia) and overseas
  medical expenses,
• Lost Baggage etc
• - to staff, students, voluntary workers, family
  members and others under the universitys
  Personal Accident and Travel policies

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FSRA - Examples (contd)

• The Universitys travel insurance policy
  including cover for any private/personal travel
  undertaken by staff or students in conjunction
  with an approved business trip

• The University charging a premium for travel
  insurance to
• A staff member for private (or excessive private
  travel) associated with a business trip
• Private travel by family members accompanying a
  staff member on a business trip

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FSRA - Examples (contd)

• If yes can the University decide what to
  charge/ can the University on-charge a specific
  amount quoted by Insurers?

• The University self insuring vehicles which are
  allocated to senior executives on a 24/7 basis
  and bearing claims for third party damage
• Whilst the vehicle is being driven by a staff
  member in a private capacity
• Whilst the vehicle is being driven by other than
  a staff member

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FSRA - Examples (contd)

• The University charging an excess to a staff
  member if the University vehicle is damaged
  whilst being used for private purposes by
• the staff member
• a family member, relative, friend etc of the
  staff member

• The implications for the University in dealing
  with claims involving the property of staff and
  students which in certain circumstances is
  covered in the ISR policy.

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FSRA - Examples (contd)

• Provision of advice/ insurance cover/services to
  student associations ( whether they are insureds
  under the Universitys policies or not),
  affiliated organisations that are not part of the
  University

• Provision of financial advice and loans by the
  University to students

• Provision of Hirers liability cover to persons
  hiring University facilities and/or market
  stallholders who do not have their own Public
  Liability cover

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Disclosure

• Chapter 7 draws a crucial distinction between
  retail and wholesale clients, for the purposes of
  disclosure
• Generally, disclosure requirements apply only to
  retail clients
• Definition of retail client'' is in section 761G
  and has several limbs. The first limb applies
  only to general insurance

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Disclosure (contd)

• Definition is product based - i.e.
• an individual or
• anyone in connection with a small business, to
  whom a financial product or service has been
  provided
• will be a RETAIL CLIENT if
• the service relates to or the product is one of
  the following listed general insurance policies
• motor vehicle insurance
• home building insurance

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Disclosure (contd)

• home contents insurance
• sickness and accident insurance
• consumer credit insurance
• travel insurance
• personal and domestic property insurance
• The list is based primarily on the concept of
  standard cover in the Insurance Contracts Act
  1984 (Cth), plus a couple of additional
  categories of policies also regarded by industry
  as consumer policies

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Disclosure Liability

• Disclosure documents if licensed
• Financial Services Guide
• Statements of Advice
• Product Disclosure Statements
• Disclosure documents if unlicensed? Information
  memorandum most common - misleading and deceptive
  conduct liability still applies
• Disclosure Regime will supplement but not replace
  disclosure requirements

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Penalties

• Civil liability may be imposed for failure to
  disclose or the provision of defective disclosure
  document
• Misleading or deceptive advice to controlled or
  associated entities and individuals on the scope
  of university policies could be sanctioned under
  FSRA
• Criminal liability may be imposed eg if a
  disclosure statement is given which is known to
  be defective
• University vicariously liable for conduct of
  officers acting within scope of employment

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Options?

• Risk management
• take advantage of clerical exemption/passing on
  prepared document brochure brokers details
• all written material to contain disclaimer that
  it is not the provision of financial product
  advice
• awareness of when insurance decision-making
  should go higher up the chain
• Apply to ASIC for exercise of its disclosure
  discretion
• Authorised representative of AFS Licensee (Tier 2
  Training only)

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ASICs Future Direction

• ASIC considering granting relief from requirement
  of authorised representative where
• arranging for issue of general insurance products
  
• of an Australian insurer, and
• the insurer accepts responsibility for that
  conduct

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Questions?

• Contacts Jodie Nicholls
• 03 9641 8932
• jnicholls_at_hgr.com.au
• Mona Nainie
• 03 9641 8721
• mnainie_at_hgr.com.au