The draft regulations for the Life Insurance Framework legislation need further clarification, according to a lawyer operating within the financial services sector who has claimed the regulations create loopholes around clawback and conflicted remuneration.
imac legal and compliance Principal Lawyer, Ian McDermott said inconsistencies in the treatment of clawback may allow advisers to circumvent the rules by rebating clients to retain their policies.
“It appears possible the clawback provisions may be avoided by merely engaging in an ongoing program of ‘rebates’ to clients, no matter how minimal the rebate so long as the rebate was applied in order to induce the client to acquire or continue to hold, the product,” McDermott said, in a blogpost on his company’s website (available here).
“The new LIF rules still allow this as well as where a ‘discount’ is applied to a policy for the same purpose,” he said.
“The LIF rules contain clawback provisions but give no regulatory guidance as to how those rules are to apply…”
He was also critical of the failure of the draft regulations to provide clarity around how clawback would apply when there had been a change of adviser or licensee between the commencement of a policy and cancellation and clawback.
“The LIF rules contain clawback provisions but give no regulatory guidance as to how those rules are to apply…The new rules do allow for ASIC to make rules that could cover such requirements so let’s hope they do spell out the requirements,” McDermott said.
“However, in imac legal’s view, given this is such an integral issue, appropriate rules should have been included in either the Act or Regulations.”
McDermott also said the application of conflicted remuneration was ‘anomalous’ in the regulations with commissions paid to advisers under the new upfront/ongoing commission model not considered as conflicted remuneration while commissions paid in relation to life insurance without advice would be considered as conflicted remuneration even when they fit within the new commission model.