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Confusion fears over ASIC product guidance

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Proposed regulatory guidance for new product design and distribution rules is inconsistent with the legislation and likely to cause confusion, insurers and brokers have warned.

The Australian Securities and Investments Commission (ASIC) last month released draft guidance on its approach to the new design and distribution obligations, with the new laws set to take effect in April next year.

Insurance Council of Australia (CEO) CEO Rob Whelan says there are differences in the terminology and concepts used in the draft regulatory guide compared with legislative changes in the Corporations Act.

“While some of these examples may seem minor, any inconsistencies between the guidance and the law has the potential to cause confusion and adds complexity to legal compliance,” he says in a submission.

“We suggest that the draft guidance be reviewed to ensure greater consistency.”

National Insurance Brokers Association (NIBA) CEO Dallas Booth says the group’s submission highlights concerns about a number of the draft proposals in the consultation paper.

“The NIBA submission indicates where the draft proposals do not reflect the terms of the design and distribution obligations legislation, and in some cases introduce concepts and obligations that are not consistent with provisions of the Act,” he said.

NIBA has also urged ASIC to meet and discuss the process for taking out domestic home and motor insurance policies in order to workshop how the obligations are likely to apply, and to understand the likely impact the laws will have on procedures for taking out the policies.

Mr Booth says the NIBA board has discussed issues with ASIC Deputy Chairman Karen Chester and other senior executives at the regulator, and will continue talks.

ICA notes the consultation paper recognises the laws are “a new regulatory paradigm” for ASIC and the financial services industry and its approach may evolve over time with experience.

A “constructive dialogue” with ASIC will be particularly critical given it doesn’t propose to provide formal industry-specific guidance, it says.

“In order to facilitate ASIC’s intended approach, the Insurance Council submits that the draft regulatory guide should provide greater certainty that a more flexible approach to regulatory enforcement will be taken, especially during an initial period,” Mr Whelan says.

Other concerns raised in the submission include the way bundled products such as home and motor will be treated, and challenges around the assessment of target market objectives, needs and financial situations.