The Australian Securities and Investment Commission (ASIC) released a draft information sheet at the end of last week which addresses the impending removal of the exemption of claims handling activities from the definition of ‘financial service’.
The regulator has taken this step following the introduction into Parliament on 12 November of the Financial Sector Reform (Hayne Royal Commission Response) Bill 2020.
…there is no basis in principle for continuing to exclude claims handling from the definition of ‘financial service’
In part, this Bill responds to Recommendation 4.8 in the Final Report of the Banking Royal Commission, in which Commissioner Hayne states “…there is no basis in principle for continuing to exclude claims handling from the definition of ‘financial service”.
In making this recommendation, Commissioner Hayne said claims handling is as much the provision of a financial service as any other financial service, and reinforced his point by referencing an earlier statement made by ASIC, which noted: “For consumers, the intrinsic value of an insurance product lies in the ability to make a successful claim when an insured event occurs.”
In its release last week, ASIC stated: “On passage of the Bill, persons providing claims handling and settling services will need to be covered by an Australian Financial Services licence, and the general conduct obligations under section 912A of the Corporations Act 2001… will apply.”
Who will need an AFS licence
Noting, importantly, that this list does not include financial advisers who handle claims on behalf of their clients, ASIC has advised the following industry participants will need to obtain an AFS licence for claims handling and settling or be authorised by another AFS licensee:
- Financial advisers who handle claims on behalf of an insurer
- Insurance claims managers
- Tradespersons (referred to as ‘insurance fulfilment providers’) who can reject claims on behalf of an insurer
- Insurance brokers who handle claims on behalf of an insurer
- People that carry on a business of representing people to pursue insurance claims for reward (referred to as ‘claimant intermediaries’)
ASIC says entities that already hold an AFS licence will need to apply for a variation to their licence so it covers the new financial service of claims handling and settling.
To assist industry to comply with the timeframes in the Bill, ASIC has released the information sheet in draft form now which it says “…will help give industry participants as much time as possible to consider whether they need to obtain (or vary) an AFS licence and, if so, what they will need to do.”
The statement says that the draft information sheet:
- Sets out who needs to be authorised to provide claims handling and settling services for insurance products and who can act on an AFS licensee’s behalf
- Explains how and when to apply for an AFS licence, or variation to an existing AFS licence, including materials that are needed to support an application
- Refers to existing regulatory guidance on how to meet the general obligations under section 912A of the Act, and indicates how the obligations may be tailored to claims handling
In the lead up to the commencement of the reforms ASIC notes it will continue to engage with industry about their implementation of the new requirements and whether it can provide additional assistance to help industry transition to the new requirements.
Click here to access the draft information sheet.