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Constructive approach sought on product rules enforcement

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The Insurance Council of Australia (ICA) has suggested the regulator should avoid a “hard-line” enforcement approach to new product design and distribution obligations when they first come into effect.

ICA says the Australian Securities and Investments Commission (ASIC) has recognised the new laws are a “new regulatory paradigm” for the regulator and the financial services industry and its approach should allow product issuers to address problems when they arise and make improvements as needed.

“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,” CEO Rob Whelan says in a submission.

A constructive dialogue will be critical, with ASIC not proposing to provide formal guidance that is industry specific, ICA says.

ASIC last month released its draft regulatory guidance on the design and distribution obligations, with the new laws set to take effect in April next year.

But both ICA and the National Insurance Brokers Association (NIBA) have raised concerns over differences between the guidance and the legislation.

“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,” Mr Whelan says

“We suggest that the draft guidance be reviewed to ensure greater consistency.”

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.