Presentation to AURIMS

1. Presentation to AURIMS Financial Services Reform Act 2001 andImplications for University Insurance Officers Presented by: Jodie Nicholls & Mona Nainie

2. Objectives • To help university insurance officers understand complex areas of financial services reform law • To do this, we will discuss key themes and practical examples of FSR law in this area, and assist in risk management of decision making that can bring universities within the regulatory environment of the FSRA • Necessarily, this should not be taken to be comprehensive treatment of FSR law or specific advice. The complexity of this area of law requires each fact scenario to be analysed on a case by case basis

3. Introduction • Single Licensing and Disclosure Scheme Regime • Impacts all Financial Services Providers (including General Insurance Companies) and the marketing and distribution of financial products • Rationale is greater accountability and adaptability in the financial services industry and to provide consistent and comparable disclosure in relation to financial products and services (including advice) • The reforms of the insurance industry do regulate traditional players in the industry

4. Commencement Provisions • Commencement 1 March 2002 (but 2 year transition) • New and existing entities providing financial services need an Australian Financial Services Licence • FSR disclosure obligations are additional to any other legislative disclosure obligations • Insurance (Agent and Brokers) Act 1994 replaced • Insurance Contract Act 1984 amended

5. Key Themes of FSRA Three key themes to remember: • Activities trigger need for entity to be licensed (e.g. advising, issuing, arranging, trading), if they relate to a financial product • Nature of “product” may require product to be regulated under Corporations Act - e.g. registered managed investment schemes • Nature of recipient affects the regulation of the documentation surrounding the supply of a service or sale of a product (wholesale / retail / internal)

6. Key Themes of FSRA (cont’d) • Remember, if activity requires a licence, it does not matter if: • product is not licensed; or • nature of recipient allows lower level documentation

7. Definitions - Financial Product • “Financial product” and “financial service” are broad definitions, designed to be flexible • A financial product is a facility through which a person: • makes a financial investment; or • manages financial risk; or • makes non-cash payments • General insurance products are specifically included in definition. Essentially is any contract of insurance that is not: • life insurance • financial insurance • employment related insurance • the concept of finance

8. Definitions - Financial Service • Financial Service - person who provides a financial service is generally taken to be carrying on a “financial services business” and therefore requires an AFSL in order to provide the financial service. • An entity that does either of the following activities, is providing a financial service: (a) providing “financial product advice”; (b) “dealing” in a “financial product” (ie issuing, arranging, trading etc)

9. Definitions - Financial Service • Financial Product Advice is provided where an entity provides a recommendation or statement of opinion or report that is intended to influence a person in making a decision or such conduct can be reasonably regarded as having such influence • “Dealing” in a Financial Product is to carry out activities such as applying for or acquiring a financial product, issuing a financial product, varying or disposing of a financial product and arranging for a person to engage in or to bring about a dealing in a financial product • Many people underestimate ASIC’s interpretation of the width of “recommendation” and “arranging”

10. Exemptions from FSRA Regime • The relevant exemptions to being licensed, to what constitutes a “financial product” and to what constitutes “dealing in a financial product”, are as follows: (a) Insurance services provided to the university’s subsidiaries and controlled entities unlikely to trigger licensing requirements (b) Provision of a financial service (i.e. financial product advice or dealing in a financial product) by a university to a related body corporate is exempt from licensing requirements

11. Exemptions from FSRA Regime (cont’d) (c) Provision of an insurance contract by a university to its employees is not considered to be a “financial product” and therefore does not amount to the provision of a financial service. Does not trigger the licensing requirements (d) Provision of a prepared document is not considered to be a “financial product” and therefore does not amount to the provision of a financial service. Does not trigger the licensing requirements. Who prepares document is still on issue. (e) Extending the university’s insurance cover to entities such as student associations, and affiliated organisations etc. is not considered to be “dealing” in a financial product where the university does not separately arrange for cover for such entities or take a fee

12. Examples of FSRA Regime • Examples of insurance related activities that universities undertake in the course of ordinary business. Do any exemptions apply?

13. FSRA - Examples (cont’d) • University staff giving information to staff, students and others concerning the scope of cover under the following University policies, under which they may have cover: • Personal Accident policy • Travel policy • Motor vehicle policy • Liability policies – Professional Indemnity and Medical Malpractice • Expatriate Health Plans (including for family members of staff) • In-patriate Medical plans • This isuniversity as insured

14. FSRA - Examples (cont’d) • University arranging travel insurance for staff including: • Visiting and adjunct academics • Students • Members of family of staff/students (including “recommending” the coverage - as it is arranged on a blanket basis.) • Contractors • Voluntary workers/external committee members • Query - university as insured or for others?

15. FSRA - Examples (cont’d) • The University accepting an excess (of say $3000) and paying claims such as: • Non–Medicare expenses (in Australia) and overseas medical expenses, • Lost Baggage etc - to staff, students, voluntary workers, family members and others under the university’s Personal Accident and Travel policies

16. FSRA - Examples (cont’d) • The University’s travel insurance policy including cover for any private/personal travel undertaken by staff or students in conjunction with an approved business trip • The University charging a premium for travel insurance to: • A staff member for private (or excessive private travel) associated with a business trip • Private travel by family members accompanying a staff member on a business trip

17. FSRA - Examples (cont’d) • If ‘yes’ can the University decide what to charge/ can the University on-charge a specific amount quoted by Insurers? • The University self insuring vehicles which are allocated to senior executives on a 24/7 basis and bearing claims for third party damage: • Whilst the vehicle is being driven by a staff member in a private capacity • Whilst the vehicle is being driven by other than a staff member

18. FSRA - Examples (cont’d) • The University charging an excess to a staff member if the University vehicle is damaged whilst being used for private purposes by: • the staff member • a family member, relative, friend etc of the staff member • The implications for the University in dealing with claims involving the property of staff and students which in certain circumstances is covered in the ISR policy.

19. FSRA - Examples (cont’d) • Provision of advice/ insurance cover/services to student associations ( whether they are insureds under the University’s policies or not), affiliated organisations that are not part of the University • Provision of financial advice and loans by the University to students • Provision of Hirers liability cover to persons hiring University facilities and/or market stallholders who do not have their own Public Liability cover

20. Disclosure • Chapter 7 draws a crucial distinction between retail and wholesale clients, for the purposes of disclosure • Generally, disclosure requirements apply only to retail clients • Definition of “retail client'' is in section 761G and has several limbs. The first limb applies only to general insurance

21. Disclosure (cont’d) • Definition is product based - i.e. • an individual or • anyone in connection with a small business, to whom a financial product or service has been provided will be a RETAIL CLIENT if: • the service relates to or the product is one of the following listed general insurance policies: • motor vehicle insurance • home building insurance

22. Disclosure (cont’d) • home contents insurance • sickness and accident insurance • consumer credit insurance • travel insurance • personal and domestic property insurance • The list is based primarily on the concept of “standard cover” in the Insurance Contracts Act 1984 (Cth), plus a couple of additional categories of policies also regarded by industry as “consumer” policies

23. Disclosure – Liability • Disclosure documents if licensed: • Financial Services Guide • Statements of Advice • Product Disclosure Statements • Disclosure documents if unlicensed? Information memorandum most common - misleading and deceptive conduct liability still applies • Disclosure Regime will supplement but not replace disclosure requirements

24. Penalties • Civil liability may be imposed for failure to disclose or the provision of defective disclosure document • Misleading or deceptive advice to controlled or associated entities and individuals on the scope of university policies could be sanctioned under FSRA • Criminal liability may be imposed eg if a disclosure statement is given which is known to be defective • University vicariously liable for conduct of officers acting within scope of employment

25. Options? • Risk management • take advantage of clerical exemption/passing on prepared document: brochure; brokers details • all written material to contain disclaimer that it is not the provision of financial product advice • awareness of when insurance decision-making should go higher up the chain • Apply to ASIC for exercise of its disclosure discretion • Authorised representative of AFS Licensee (Tier 2 Training only)

26. ASIC’s Future Direction • ASIC considering granting relief from requirement of authorised representative where: • arranging for issue of general insurance products • of an Australian insurer, and • the insurer accepts responsibility for that conduct

27. Questions? Contacts: Jodie Nicholls 03 9641 8932 jnicholls@hgr.com.au Mona Nainie 03 9641 8721 mnainie@hgr.com.au