ASIC Class Order [CO 10/177]

ASIC CLASS ORDER [CO 10/177]

EXPLANATORY STATEMENT

Prepared by the Australian Securities and Investments Commission

Corporations Act 2001

The Australian Securities and Investments Commission (ASIC) makes ASIC Class Order [CO 10/177] under ss601QA and 911A(2)(l) of the Corporations Act 2001 (the Act).

Section 601QA(1)(a) provides that ASIC may exempt a class of persons from the provisions of Ch 5C of the Act.

Section 911A(2)(l) provides that ASIC may exempt a class of persons from the requirement to hold an Australian Financial Services licence (AFS licence) under Pt 7.6 of the Act.

1. Background

ASIC Class Order [CO 08/1] gives conditional relief from the AFS licensing and disclosure regime and Ch 5C of the Act for some group purchasing bodies (GPBs) who arrange or hold risk management products (insurance) for the benefit of third parties. In certain circumstances, GPBs include Australian financial services licensees or authorised representatives of Australian financial services licensees.

ASIC Class Order [CO 08/1] limits the relief provided to circumstances where the group purchasing body is most likely to be acting in the interests of the persons to be covered by the risk insurance product, rather than in its own interests or in the interests of anyone else. Given that the role played by certain group purchasing bodies is in many ways more like the buyer of risk management products rather than a seller, ASIC considers that there may be less need for strict compliance with the requirements of Chapters 7 and 5C.

ASIC Class Order [CO 08/1] came into effect on 30 September 2008. In 2009, some participants in the insurance industry and some group purchasing bodies asked ASIC to clarify [CO 08/1] and its policy for relief as explained in RG 195 Group purchasing bodies for insurance and other risk management products (RG 195) to remove any possible uncertainty about the conduct of group purchasing bodies that might bring them within the scope of the relief, to give more particular guidance about the practical operation of the eligibility tests for the relief, and to introduce greater flexibility into the notification requirements in the conditions of relief.
 

ASIC Class Order [CO 08/1] was varied by ASIC Class Order [CO 10/116] and [CO/10 177].

2. Purpose of the class order

ASIC Class Order [CO 10/177] clarifies the relief available for eligible group purchasing bodies that are arranging and holding risk management products or operating a risk management scheme.

3. Operation of the class order

Paragraph 4 amends [CO 08/1] by:

1. Making a minor related technical amendment to subparagraph 4(c) omitting the word "paragraph" and substituting the word "subparagraph".
2. Clarifying that a body is ineligible to rely on the relief if the body carries on a business of issuing "risk management products" generally. For example, if the body carries on a business of issuing general insurance products, it will be ineligible under subparagraph 5(a). A body may only be eligible for relief under paragraph 5(a) if it carries on a business of issuing interests in the group insurance arrangement and, or, provides financial product advice in relation to the group insurance arrangement.
3. Clarifying that a body may be eligible for relief under subparagraph 5(aa) if the body is a licensee or an authorised representative, provided the only persons to be covered by the risk management product or issued interests in the risk management scheme, are directors, employees etc of the body.
4. Clarifying that to be eligible for relief under sub-subparagraph 5(b)(ii), in circumstances where the body receives a payment from a person who is covered by the group insurance arrangement, the body is eligible for relief where the amount of the payment is separately identified from other amounts payable by the person to the body to become or remain a member of the body. 
5. Amending sub-paragraph 10(b) to clarify that a body will still be required to take reasonable steps to bring to the attention of each relevant person that the product may be cancelled or not renewed, if the body does not expect the cover will apply for the period or the product is likely to be cancelled or not renewed, and the terms of the product require the issuer to give the person notice before cancellation or non-renewal of the product.
6. Amending sub-subparagraph 10(e)(iii) to clarify that the body does not have to give the person information about any amounts payable by the person to obtain the cover under the product if the amount cannot be separately identified in dollars from any other amounts payable by the person to the body to become or remain a member of the body.
7. Amending sub-subparagraph 10 (e)(v) so that the relevant condition is subject to the qualification that the body is neither a financial services licensee nor the authorised representative of such a licensee.
8. Extending the cessation of the transitional period for compliance with the breach reporting requirements from 30 June 2010 until the first time that the group purchasing body acquires, renews or renegotiates the terms of the risk management product on or after 31 December 2010, but in any event no later than 31 December 2011.

4. Consultation

In preparing [CO 10/177] ASIC has consulted with the National Insurance Brokers Association of Australia. ASIC did not otherwise undertake consultation with respect to [CO 10/177] as it is of a minor and machinery nature.