Federal Register of Legislation - Australian Government

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ASIC Class Order [CO 06/623]

Authoritative Version
CO 06/623 Orders/ASIC Class Orders as made
This Class Order provides relief to insurers who receive client monies on behalf of another insurer that is the issuer of the insurance product, from the trust account requirements in Subdivision A of Division 2 of Part 7.8 of the Corporations Act 2001, where the receiving insurer holds those monies in a section 1017E trust account.
Administered by: Treasury
Registered 17 Aug 2006
Tabling HistoryDate
Tabled HR04-Sep-2006
Tabled Senate04-Sep-2006
Date of repeal 28 Jul 2015
Repealed by ASIC Corporations (Repeal) Instrument 2015/684

ASIC CLASS ORDER [CO 06/623]

EXPLANATORY STATEMENT

Prepared by the Australian Securities and Investments Commission

Corporations Act 2001

Paragraphs 992B(1)(c) and 1020F(1)(c) – Declarations

The Australian Securities and Investments Commission (ASIC) makes Class Order [CO 06/623] under paragraphs 992B(1)(c) and1020F(1)(c) of the Corporations Act 2001 (the Act).  Paragraph 992B(1)(c) provides that ASIC may declare that Part 7.8 of the Act applies in relation to a person or class of persons as if specified provisions were modified and paragraph 1020F(1)(c) provides that ASIC may declare that Part 7.9 of the Act applies in relation to a person or a class of persons as if specified provisions were modified.

 

1.         Background

 

Part 7.8 of the Act requires a financial services licensee who receives money in relation to a financial product to establish and maintain a trust account to hold client money separately for the benefit of the client.

 

An issuer or a seller of financial products who receives money from a client for the product before the product is issued (for whatever reason) must put the money into an account that meets the requirements of section 1017E of the Act.

 

The Part 7.8 trust account obligations do not apply to money received for the issue of a financial product by the issuer of the product. However, in certain circumstances involving the issue of insurance products, the person receiving money for the issue of the product may not be the issuer.  Those circumstances include co-insurance arrangements (where there is more than one insurer responsible for the issue of the insurance product), bundled insurance contracts (where a contract of insurance provides multiple insurance products and each product may be issued by a different insurer) and arrangements for the collection of premiums among companies that are part of an insurance conglomerate group (for example, one insurer who is a member of the group may receive money as an agent of one or more other members of the group).

 

If one insurer (Insurer A) receives money for an insurance product that is issued by another insurer (Insurer B) on Insurer B’s behalf, then it is unclear whether Insurer A must keep the money in Insurer A’s trust account in accordance with Part 7.8 or pay the money in to an account that meets the requirements of section 1017E on Insurer B’s behalf.

 

 

 

 

 

ASIC received submissions that the operation of the above provisions may present the following practical difficulties:

 

(a)     where insurance products are issued together as a package, it is often impractical and costly for single payments made for the whole insurance package to be separated out and deposited into different accounts at the time of their receipt; and

 

(b)     currently there is little or no flexibility in the manner in which insurance conglomerate groups handle receipt of client money and generally speaking one insurer in the group receives client money as agent of other insurers in the group.

 

 

These practical difficulties are likely to affect all major general insurers as a result of the high incidence of multiple related product issuers and bundled insurance products in the general insurance industry.

 

2.         Purpose of the class order

 

The purpose of Class Order [CO 06/623] is to resolve any ambiguity about how the law operates and achieve an appropriate balance between the regulatory burden imposed on general insurers by the trust account requirements and the need to ensure that consumers receive sufficient protection in respect of client monies.

 

3.         The class order

 

The class order will operate so that the Part 7.8 requirements do not need to be met by an insurer who receives money for an insurance product as the agent of the insurer who is the issuer of the product if the section 1017E requirements are met  and the issuing insurer does not need to meet the section 1017E requirements if the issuer's agent has met the Part 7.8 requirements regarding that money.

 

Intended operation and likely impact of the class order

 

The class order is intended to enable insurers to meet their statutory trust account obligations using their existing infrastructure and current accounting systems.

 

Based on ASIC's consultation with the industry, it appears likely that most general insurers will benefit from the relief given by this class order.

 

 

4.         Consultation with affected parties

 

ASIC undertook significant consultation with the industry body representing general insurers - the Insurance Council of Australia.

 

ASIC also consulted a number of general insurers that were either directly or indirectly affected by the trust account requirements under the Act.