- The Government’s response to the FSI contains both good and bad news for insurers and brokers
- One issue of concern is the proposal that ASIC must approve all changes in control of AFS Licensees. This will significantly expand such regulatory oversight beyond authorised insurers to a multitude of insurance brokers and underwriting agencies.
The good news
In the Centre for the Study of Financial Innovation Insurance Banana Skins 2015, regulation topped the survey for the third year running as the external risk of greatest concern. The concern is driven by regulatory pressure and the cost and distraction caused by seemingly endless regulatory change.
In this regard, there is both good and bad news in the government’s response to the FSI.
The response foreshadows another wave of regulatory change, inevitably resulting in considerable cost and distraction in addressing such changes (whether good or bad).
On a more positive note, the Government has recognised the need to work with regulators to give businesses appropriate time to implement regulatory changes. There is also increased focus on the performance of the regulators themselves, which is why the Government is already conducting a capability review of ASIC. The Government also released a consultation paper on an industry funding model for ASIC on 28 August 2015 (See our previous update here).
The not so good news
However, with greater accountability comes greater power. One of the potential sleepers in the FSI is the Government’s agreement to strengthen ASIC’s enforcement tools in relation to financial services and credit licencing regimes by developing legislative amendments to enable ASIC to:
- approve changes of licensee control;
- consider a broader range of factors in determining whether an applicant satisfies the “fit and proper” test to be granted a licence; and
- impose conditions on firms to address concerns about internal systems relating to serious or systemic conduct (including external reviews).
ASIC’s enforcement regime, including penalties in the financial services licensing breach notification framework are also to be reviewed in 2017.
Of particular concern is the potential need for ASIC to approve any changes of licensee control.
Unlike existing measures in place for insurers and other large financial sector companies, this power is potentially far reaching, as a much wider range of companies could be subject to such restrictions. There are thousands of AFS licensees and this change would seemingly add not only to the regulatory burden on ASIC but also to that of the wider industry.
Unless this power is limited in some way, it has the potential to significantly alter the regulatory landscape for brokers and underwriting agencies (who will generally hold their own AFS Licence).
No details on the approval process or criteria for approval are available. If onerous, the ability to sell and acquire insurance agencies and brokers may be adversely affected. This impact may be most keenly felt by cluster groups and insurers looking to take a majority interest in their affiliated agencies.
This is another reason to monitor any expansion of ASIC’s powers arising from the FSI carefully.