Replacement Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Josh Frydenberg MP)General outline and financial impact
Implementing Recommendation 4.7 of the Financial Services Royal Commission
Schedule 1 to the Bill gives effect to recommendation 4.7 of the Financial Services Royal Commission to extend the existing protections of the unfair contract terms regime under the Australian Securities and Investments Commission Act 2001 to insurance contracts governed by the Insurance Contracts Act 1984 .
Date of effect: The amendments commence on 5 April 2021. The unfair contract terms regime will apply to insurance contracts that are new or renewed after the commencement date. The amendments will also apply to terms of a contract varied after the commencement date.
Proposal announced: The Government announced that it would extend the unfair contract terms regime to insurance contracts on 4 February 2019 as part of the Government's response to the Financial Services Royal Commission.
Financial impact: This Schedule has no financial impact
Human rights implications: This Schedule does not raise any human rights issues. See Statement of Compatibility with Human Rights - Chapter 4, paragraphs 4.1 to 4.4.
Compliance cost impact: The compliance costs for insurers are likely to be low. It is estimated that there will be upfront costs of under $4 million in the first year to implement the reform with no ongoing costs for insurers.
The Financial Services Royal Commission Final Report has been certified as being informed by a process and analysis equivalent to a Regulation Impact Statement for the purposes of the Government decision to implement this reform. [1]
Implementing Recommendation 4.2 of the Financial Services Royal Commission
Schedule 2 to the Bill gives effect to recommendation 4.2 of the Financial Services Royal Commission to ensure that the consumer protection provisions of the Australian Securities and Investments Commission Act 2001 apply to funeral expenses policies.
Date of effect: The amendments apply from the day after the Bill receives Royal Assent.
Proposal announced: As part of the response to the Financial Services Royal Commission, the Government announced on 4 February 2019 it would put beyond doubt that the consumer protection provisions of the Australian Securities and Investments Commission Act 2001 apply to funeral expenses policies.
Financial impact: This Schedule has no financial impact
Human rights implications: This Schedule does not raise any human rights issues. See Statement of Compatibility with Human Rights - Chapter 4, paragraphs 4.5 to 4.8.
Compliance cost impact: This measure will result in low increases to compliance costs.
The Financial Services Royal Commission Final Report has been certified as being informed by a process and analysis equivalent to a Regulation Impact Statement (RIS) for the purposes of the Government decision to implement this reform. [2]
Mortgage brokers
Schedule 3 to the Bill amends the Credit Act to require mortgage brokers to act in the best interests of consumers; and address conflicted remuneration for mortgage brokers.
Date of effect: 1 July 2020
Proposal announced: This Schedule implements the Government's response to recommendations 1.2 and 1.3 of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, announced on 4 February 2019 and 12 March 2019.
Financial impact: The Schedule has no financial impact.
Human rights implications: This Schedule does not raise any human rights issue. See Statement of Compatibility with Human Rights - Chapter 4, paragraphs 4.9 to 4.13.
Compliance cost impact: The Office of Best Practice Regulation has agreed to the estimates of annual average compliance costs for the measures relating to the two recommendations, as follows:
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- Recommendation 1.2 (Mortgage broker best interests duty) - $58.2 million a year for business and $10.2 million a year for individuals/consumers and
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- Recommendation 1.3 (Broker remuneration) - $18.9 million a year for business.
The Financial Services Royal Commission Final Report has been certified as being informed by a process and analysis equivalent to a Regulation Impact Statement (RIS) for the purposes of the Government decision to implement this reform. [3]