The Australian Securities and Investments Commission (ASIC) Enforcement Review Taskforce has proposed civil penalties be imposed on insurers in breach of certain obligations under the Insurance Contracts Act.

It says such penalties should apply for failure to observe provisions of the duty of utmost good faith and failure to provide clients with mandatory key facts sheets.

Current rules mean there are limitations on ASIC exercising its administrative powers and representative action as regulatory tools.

For example, Section 14A of the Insurance Contracts Act enables the regulator to use its powers in relation to failure to comply with the duty of utmost good faith in the handling of claims settlements. But it does not provide the general standing to take legal action in relation to such a failure, the taskforce says in a consultation paper.

The taskforce wants feedback on the proposal and other recommendations for tougher penalties to deal with misconduct in the financial sector, after wrapping up its review of the enforcement regime and regulatory tools available to ASIC.

The review, announced last October by Revenue and Financial Services Minister Kelly O’Dwyer, concluded the regime is inadequate to address the range and severity of misconduct, and some penalties are too low to act as a credible deterrent.

It also found some penalties are inconsistent with the punishment for equivalent Commonwealth and state provisions.

“The present taskforce has been established to review the adequacy of penalties and not to conduct a grassroots assessment of the theoretical underpinnings of the regulatory regime for enforcing corporations legislation in Australia,” the consultation paper says.

“Nevertheless, the taskforce accepts it is important that ASIC have a range of options for enforcement… including to respond at lower ends of the scale, as by penalty or infringement notices, as well as at the higher end, such as by resort to civil penalty or criminal proceedings.”

The closing date for submissions is November 17. For more information, click here.