Insurance (Agents and Brokers) Regulations (Amendment)

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EXPLANATORY STATEMENT

STATUTORY RULES 1987 NO. 339

INSURANCE (AGENTS AND BROKERS) REGULATIONS

ISSUED BY AUTHORITY OF THE MINISTER ASSISTING THE TREASURER

The Insurance (Agents and Brokers) Act 1984 (the Act) is designed to regulate the activities of insurance brokers and, to an extent, insurance agents. The Act, which is largely-based on recommendations made by the Law Reform Commission in its Report on Insurance Agents and Brokers, is aimed at regulating this area of the insurance industry with a view to strengthening the financial stability of the industry overall; protecting the insuring public against the negligence or misconduct of an agent or broker; minimising practices harmful to the insuring public and maintaining standards of conduct of, and quality of advice offered by, agents and brokers.

Section 48 of the Act provides that the Governor-General may make regulations, not inconsistent with the Act, prescribing matters necessary or convenient to be prescribed for carrying out or giving effect to the Act.

Section 26 of the Act provides that a registered insurance broker shall pay into an ‘insurance broking account’ maintained with a bank all moneys received from an insured or intending insured for an insurer, or from an insurer for an insured or intending insured. While the purposes for which moneys may be withdrawn from that account are limited, sub section 26(4) provides for the investment of moneys received from an insured (or intending insured) in connection with a contract of insurance (not being a contract of life insurance) arranged or effected (or to be arranged or effected) by the broker.

Amendments to Regulation 10 were introduced in December 1986 to expand the range of investments available to a registered insurance broker to invest funds received from an insured or intending insured for general insurance contracts. As part of these amendments, definitions of ‘member’ and ‘stock exchange’ were included. The definition of ‘stock exchange’ provided that it have the same meaning as it has in the Securities Industry Act 1980. Section 4(1) of that Act in turn defines a stock exchange as a ‘body corporate that is approved by the Ministerial Council under section 38’ of the


Act. Since the Australian Stock Exchange and National Guarantee Fund Act 1987 came into operation on 1 April 1987, the Australian Stock Exchange Limited (ASX) has been approved under section 38 as a body corporate for the purposes of the Act. However, prior to 1 April, there was no approved body corporate under that section. Furthermore, an anomaly has arisen as three stock exchanges - the Ballarat Stock Exchange, the Bendigo Stock Exchange and the Stock Exchange of Newcastle Limited - are not part of the ASX. Members of those stock exchanges, who are not also members of the ASX, were therefore not included in the definitions of ‘stock exchange’ or ‘member’ in the Regulations.

The amendments to Regulation 10 clarify which stock exchanges came within the definition during the period between the commencement of the amended Regulation 10 and the establishment of the ASX, and expand the definition to include the three stock exchanges not part of the ASX.

Details of the regulation are attached.

Insurance and Superannuation Commission

CANBERRA ACT

ATTACHMENT

DETAILS OF AMENDED REGULATION 10

Sub regulation (1) defines an ‘approved bank’ as a bank within the meaning of the Banking Act 1959 and a State Bank. It also defines an ‘authorised dealer in the short term money market’ in terms of the Banking (Savings Banks) Regulations and a stock exchange and a member of same by reference to a list of stock exchanges.

Sub regulation (2) sets out the investments prescribed for the investment of funds received by a registered insurance broker from an insured or intending insured for general (as distinct from life) insurance contracts. These comprise:

(a) securities issued or guaranteed by the Commonwealth, a State or the Northern Territory;

(b) securities issued by an authority constituted by or under a Commonwealth Act, a State Act or a Territory law;

(c) deposits with an approved bank;

(d) deposits with, or shares in, a building society with trustee status in a State or Territory;

(e) negotiable instruments (other than cheques) issued, accepted, drawn or endorsed by an approved bank;

(f) deposits with an authorised dealer in the short term money market;

(g) cash management trusts in existence on 1 July 1986. These generally invest their trust fund in investments of the type referred to above as well as deposits with, and negotiable instruments guaranteed by, wholly-owned subsidiaries or approved banks; and

(h) cash management trusts which may be established in the future by wholly-owned subsidiaries of approved banks, registered life insurers and members of stock exchanges.

Overview

The Insurance (Agents and Brokers) Regulations 1987 were enacted to provide detailed guidelines on the management of funds by insurance brokers, as mandated by the Insurance (Agents and Brokers) Act 1984. This Act was introduced to regulate the activities of insurance brokers and agents, addressing the need to protect the public from negligence or misconduct and to maintain high standards of conduct and quality of advice. The regulations were issued under the authority of the Minister Assisting the Treasurer and are intended to ensure that the investments made by brokers are secure and in line with the Act's objectives. The 1987 amendments to Regulation 10, in particular, were aimed at expanding the range of permissible investments for brokers, addressing anomalies that existed before the Australian Stock Exchange was established, and clarifying the definitions of key terms such as 'stock exchange' and'member' to include regional exchanges not affiliated with the ASX.

Scope and Application

The Insurance (Agents and Brokers) Regulations 1987, issued under the authority of the Insurance (Agents and Brokers) Act 1984, pertain specifically to the regulation of insurance brokers and, to a certain extent, insurance agents. The Act aims to ensure the financial stability of the insurance industry, protect the public from the negligence or misconduct of brokers and agents, and maintain high standards of conduct and quality of advice. The Regulations establish the types of investments that registered insurance brokers can make with funds received from insureds or intending insureds for general insurance contracts. These investments include securities issued by governments or authorities, deposits with approved banks, shares in building societies with trustee status, negotiable instruments, and cash management trusts, among others. The Regulations also provide for the definition of terms such as "approved bank," "authorised dealer in the short term money market," and "stock exchange," ensuring that the investments are made in approved entities. The scope of the Act is Commonwealth-wide, and its application extends through subordinate instruments to provide detailed guidance on the implementation of the Act's provisions.

Key Provisions

The Insurance (Agents and Brokers) Regulations, under the Insurance (Agents and Brokers) Act 1984, detail specific requirements for the operation of insurance brokers and agents in Australia. Section 26(1) mandates that registered insurance brokers must deposit all funds received from insureds or potential insureds into an 'insurance broking account' with an approved bank. This ensures that such funds are kept separate from the broker's personal or business accounts and can only be withdrawn for authorised purposes, such as paying premiums to insurers or reimbursing insureds (Section 26(4)). The amended Regulation 10 expands the permissible investments for these deposited funds, allowing brokers to invest in various financial instruments, including government and state securities, authorised bank deposits, and shares in approved building societies, among others (Sub regulation (2)). The obligations imposed by these regulations are intended to safeguard the financial interests of insureds by ensuring that their funds are managed prudently and transparently. Registered brokers must maintain meticulous records of all transactions involving these funds, including detailed accounts of investments and withdrawals (Section 26(5)). Additionally, brokers are required to comply with specific reporting obligations, including periodic statements to the Insurance and Superannuation Commission detailing the status of their insurance broking account (Section 26(6)). The regulations also mandate that brokers act with integrity and competence, adhering to professional standards and ethical guidelines set forth by the Act. Failure to comply with these obligations can result in significant legal consequences. Under Section 30, any person who breaches the Act or the regulations may be subject to penalties. For instance, an individual or entity that mishandles funds deposited into an insurance broking account could face substantial fines, with the maximum penalty being determined by the severity of the breach. Civil liabilities may also arise, allowing aggrieved parties to seek compensation for losses incurred due to the breach. In severe cases, criminal charges could be pursued, leading to imprisonment. The specific penalties are detailed in the Act, with the maximum fines and imprisonment terms varying based on the nature and extent of the breach.

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Sourced from the Federal Register of Legislation at 26 August 2026. For the latest information on Australian Government law please go to https://www.legislation.gov.au.