Insurance Broker Disputes Limited (IBDL) has announced that from July, the Banking and Financial Services Ombudsman (BFSO) and IBDL will share a case management system,
operated by BFSO. IBDL handles complaints and helps resolve problems between
insurance brokers and other financial services providers (other than
insurance companies) and their clients. The limit
for complaints will be $100,000 an event, including disputes over business
insurance cover.

The
Australian Prudential Regulation Authority (APRA) has issued, for
consultation, a Discussion Paper, accompanied by draft prudential
standards and a prudential practice guide, on managing risks from
outsourcing. The standards apply a harmonised approach to authorised
deposit-taking institutions (ADIs), general insurers and life insurers.

The
package represents a principles-based approach detailing APRA’s minimum
requirements for managing risks from outsourcing but leaving the way
open for institutions to develop their outsourcing policy that meets
the principles.

The draft prudential
standards are largely based on the requirements currently in place for
ADIs but introduce greater flexibility in the approach to intra-group
outsourcing and deal explicitly with outsourcing to an offshore party
(’offshoring’).

APRA
Chairman, Dr John Laker, said the risks arising from outsourcing
arrangements are common across the industries regulated by APRA and are
best addressed through a harmonised approach.

The draft prudential standards
and prudential practice guide will be finalised in the second quarter
of 2006 and will take effect on 1 October 2006.

ASIC has launched its new ‘term allocated pension’
calculator to help make retirement planning easier, and also announced
upgrades to its very popular and powerful super calculator.

In a recent speech Charles Littrell, APRA Executive General Manager Policy Research and Statistics Division, suggested that APRA was like Goldilocks as far as regulatory capital for banks and insurers was concerned: not too much, not too little but "just right", but its version of "just right" was probably more than what shareholders thought was right as APRA looked at it from the point of view of depositors and policyholders.

Littrell identified some trends:

1. Better use of surplus capital: instead of risking it on a risky "strategic initiative" it is being returned to shareholders

2. the increasing complexity and divergence of regulatory equity from accounting equity.

3.improving the quality of capital, and particularly quality of equity, rather than increasing the absolute quantity of regulatory capital. He thought the net effect of this was neutral but that the capital ratios of Australian banks would be in the lower ranks compared to international peers even though their asset quality was amongst the best.

GE Money has given ASIC an enforceable undertaking to change its life insurance sales practices and compensate affected customers.

The undertaking is in response to ASIC’s investigation into insurance advice provided by Avco Financial Services which GE Money acquired in 1999. ASIC reviewed over 150 customers’ files. Following the review, ASIC was concerned about a number of GE Money insurance sales practices, including the following:

    * GE Money had a practice of advising customers to take out Consumer Credit Insurance life cover (which would pay out the GE Money loan on their death) as well as a term life policy (which would pay a lump sum on death to the customer’s estate) when it would have been cheaper for the customer to take out one term life policy to achieve the same result;

    * GE Money routinely advised customers, who were single and had no dependants, to take out life insurance to pay out the loan to GE Money when it was not clear that it was in the customer’s interests to do so; and

    * GE Money might have recommended that customers take out more life insurance than they needed because GE Money:

          o routinely did not take into account the level of customers’ superannuation savings;
          o sometimes did not take into account life insurance cover that was part of customers’ superannuation; and
          o sometimes recommended a higher level of insurance cover than the customer records suggested they needed.

    * Where an existing customer sought further credit, GE Money’s practice was to provide a new loan package (incorporating the existing loan balance) and replace the existing CCI life policy with a new one. These customers were not told about the potential problems with this approach, including that if a health condition arose before the issue of the replacement policy, they might not be able to make a claim.

GE Money’s undertakings include that GE Money will:

   1. stop recommending that customers take both CCI life and term life policies;
   2. stop advising single customers with no dependants to take out life insurance to pay the GE Money loan, unless there is a clear benefit to the customer;
   3. undertake a review, both internally and by an independent compliance expert, of its sales practices; and
   4. offer compensation to affected consumers.

Jeffrey Lucy the Chairman of Australian Securities and Investments Commission (ASIC) has explained ASIC’s role as a consumer protection regulator in an address to Consumer Affairs Victoria’s Third National Consumer Congress.

He said that ASIC’s role differed from ACCC’s as ASIC currently licences most providers of financial services and products including financial advisers, superannuation trustees, general and life insurance companies, banks and other intermediaries such as insurance and stockbrokers. The main omission from ASIC’s licensing regime under the Corporations Act is credit providers and credit intermediaries.

ASIC’s responsibilities under the ASIC Act focus on the same types of conduct that the ACCC has responsibility for under the Trade Practices Act. But ASIC’s role is limited to preventing and taking action in relation to unconscionable, misleading or deceptive conduct connected to financial services and products. ASIC’s jurisdiction under the ASIC Act is broader than under the Corporations Act as it does extend to credit.