Poor drafting of the draft Future of Financial Advice (FOFA) bill on payments means general insurance brokers could be included in some bans, according to a leading financial services lawyer.

Minter Ellison partner Richard Batten says the poor definitions in the section on volume payments have not properly excluded the general insurance industry from the bans.

The two problem areas are volume-based benefits and payments from platforms to financial services advice organisations.

Mr Batten says while general insurance brokers have been carved out of the FOFA legislation on receiving conflicted remuneration and soft-dollar payments, this does not extend to brokers making these payments.

“There is also no express carve-out for volume-based benefits payable by licensees, other than insurers, to employed insurance (life or general) advisers even though receipt of risk commissions from insurers will generally be allowed to continue,” he told insuranceNEWS.com.au. 

“Without such an express carve-out, any employer which pays an employed risk adviser a share of commissions received will be in breach of the legislation.

“This will need to be addressed before the legislation is enacted.” 

Mr Batten says brokerages will still be able to receive volume payments from the insurance companies, but they will not be able to pay it on to the authorised representative.

The exact definition of an insurer will also need to be looked at in the legislation, as this could exclude organisations such as Lloyd’s.

Another area of concern is the broad definitions of volume-based shelf-space fees that are paid to platform operators.

Mr Batten says the draft FOFA legislation has not given a precise definition of a platform, although the assumption is that it refers to the investment industry.

“Because the legislation only defines what a platform is very broadly, it could include many other things,” he said. “A processing system for general insurance brokers could be potentially fall within the definitions of a platform.”

The use of the word “platform” is commonly used in the general insurance industry, as Ebix Australia uses it on its website to describe its popular Sunrise Exchange system.

“The problem is the ban is difficult to understand, as a platform operator is defined not only as someone who provides a facility through which financial products are issued but also as a facility through which licensees and advisers can obtain information about financial products,” Mr Batten said. 

“Presumably the Government does not intend to capture general insurance in this ban, but it will require the legislation to be amended.”

National Insurance Brokers Association CEO Dallas Booth told insuranceNEWS.com.au the association is talking to Treasury about volume payments together will some other issues in the FOFA bill.

“We have identified some issues we need to look at carefully in the bill,” he said.

“Volume payments are one issue we need to discuss with Treasury and how brokers are carved out.”