Important regulatory update and notice of intent

ARTICLE
10 September 2021 dot 12 mins read
With October fast approaching, and numerous regulatory updates coming into effect, we are providing an outline of several regulations about which you need to be mindful. These include Design and Distribution Obligations (DDO), our outlined Target Market Determination (TMD) as well as complaints, reporting and key timeframes you should know.
 
We request that you keep note of this page as it references key obligations that AIA Australia Limited (AIAA) will implement or has already implemented which may impact you and your clients.
 
As we protect many Australians’ financial wellbeing, our products have been designed to cater for a range of clients and their personal, financial and family commitments. Our products and obligations will continue to be developed in line with our commitments to your clients and their expectations of AIAA.

 
In December 2020, the Australian Securities & Investments Commission (ASIC) released changes to the Design and Distribution Obligations (DDO) Regulatory Guide RG 274. The guide outlines ASIC’s expectations for how both issuers and distributors will meet their obligations under the DDO regime from 5 October 2021.
 
The DDO regime introduces requirements for issuers to design products that are likely to meet the needs of consumers and for both issuers and distributors to distribute their products in a more targeted manner.
 
This means:
 
  • Product issuers must design financial products that are likely to be consistent with the likely objectives, financial situation and needs of the clients for whom they are intended (target market);
  • Product issuers must ensure that its relevant products have a documented Target Market Determination (TMD)
  • Product issuers and distributors must take ‘reasonable steps’ that are reasonably likely to result in financial products reaching clients in the target market defined by the issuer
  • Product issuers must monitor clients’ outcomes and review products to ensure that clients are receiving products that are likely to be consistent with their likely objectives, financial situation and needs
  • The DDO regime requires issuers and its distributors to develop and maintain effective product governance arrangements across the life cycle of financial products. This will result in improved outcomes for clients of these products.

It encompasses the following key aspects:
 
  • Product design TMD
  • Complaints and significant dealings related to DDO
 
As a product issuer, AIAA must prepare a TMD (or set of TMDs) for each financial product in respect of which a Product Disclosure Statement (PDS) is required to be prepared. The TMD is required to describe the class of client the product is designed for and how the product meets their likely needs. A TMD must be made available before any person (including a distributor) engages in ‘retail product distribution conduct’ in respect of the relevant product.
 
Broadly speaking, retail product distribution conduct means any dealing in the product in relation to a retail client (except for disposing of or varying the product), the provision of financial product advice to a retail client in respect of the product, and the provision of a PDS for the product to a retail client.
 
In addition, the DDO requires AIAA to:
  • take reasonable steps that will, or are reasonably likely to, result in distribution of our products consistent with our TMD
  • review the TMD to ensure that it remains appropriate based on designated review cycles and event triggers
  • notify ASIC of ‘significant dealings’ that are not consistent with the TMD

You can find AIAA's TMDs for the following products in the link below:
 
  • Priority Protection and Priority Protection for Plaform Investors*
  • Professional Insurance Portfolio*
  • Investment Growth Bond, and
  • Guranteed Annuities - Lifestream Guaranteed Income.

* There is a TMD for each cover type and it is applicable to both ordinary and super (where available). For insurance held in super you may also need to refer to the TMDs prepared for the superannuation product by the relevant Trustee.
Complaints and significant dealings
 
Under the DDO regime, if a distributor engages in ‘retail product distribution conduct’ in relation to a product for which AIAA has issued a TMD, they must provide certain information in writing to AIAA. This includes information about whether the distributor received complaints in relation to the product during the reporting period specified in the TMD, and if so, the number of complaints received, as well as any further information acquired during the specified reporting period that the TMD has specified should be reported to AIAA. A distributor must report this information to AIAA as soon as practicable, and in any case within 10 business days after the end of the relevant reporting period.
 
Distributors will be required to report to AIAA any ‘significant dealings’ in the product that are not consistent with the TMD. This must be done as soon as practicable after a distributor becomes aware, and in any event within 10 business days.
 
RG 274 offers guidance that following factors may be considered when determining whether a significant dealing has occurred. These can include:
 
  • The proportion of consumers outside of the target market who acquire the product
  • The actual or potential harm to consumers, including any financial losses incurred
  • The nature and extent of inconsistency of distribution to the TMD
  • Some consideration of premiums or gross income in relation to insurance products; and
  • The time period in which the significant dealings took place.
It is important to note that significant dealing notifications requirements are in addition to existing breach reporting obligations and a significant dealing does not necessarily mean that the law has been breached.
 
What circumstances might be considered a significant dealing?
 
A significant dealing will depend on the specific circumstances;, however, this may include any patterns of distribution that are inconsistent with the TMD at the time of distribution including to:
 
  • The excluded class of customers
  • Customers whose needs are unlikely to be meet by the product
  • Customers who are unlikely to be eligible for a benefit
  • Any other situation that suggests that the product is not appropriate for their needs.
 
How should I report a significant dealing?
 
If you believe you have discovered a significant dealing, please complete this form below.
 
Please consult your compliance team when completing this form. If you have further questions regarding the form or how AIA is meeting our obligations under DDO please reach out to your AIA Client Development Manager or Client Development Associate.
 
Please report any significant dealings as soon as practical, and no later than 10 business days after you became aware.

 
The new Internal Dispute Resolution regime (IDR – RG 271) will come into effect on 5 October 2021 and has been implemented to ensure the client has a fair, timely and effective dispute resolution process.
 
AIAA will not be issuing a new Distribution Agreement. This is a Notification of Intent that we will adhere to the timeframes of the IDR responses as illustrated in the below table (Table 1).
 
As an issuer of insurance products, AIAA are required to have a dispute resolution system that consists of:
 
  • an IDR procedure that complies with the standards and requirements made or approved by ASIC (set out in this guide) that cover complaints made by retail clients in relation to the financial services provided; and
  • membership of AFCA.

At AIAA, we have a robust process already in place to provide additional reassurance to licensees, advisers and their clients. By enhancing our processes, we are further adhering to the guide.
What is a complaint?
 
As per RG 271.27 - AS/NZS 10002:2014 the definition of ‘complaint’ is:
 
  • [An expression] of dissatisfaction made to or about an organisation, related to its products, services, staff or the handling of a complaint, where a response or resolution is explicitly or implicitly expected or legally required.

Timeframes for IDR response
 
Key to a complaint is our ability to communicate in a timely manner to the complainant. The first step is acknowledging a complaint, either verbally or in writing (email or post). Once a complaint is received, as an issuer, we have 30 calendar days to provide an IDR response to the complainant. However, in certain cases a different timeframe applies.
 
Complaints type Maximum timeframes for IDR response More information
Standard complaints
No later than 30 calendar days after receiving the complaint
RG 271.56
Traditional trustee complaints No later than 45 calendar days after receiving the complaint
RG 271.76-RG 271.78
Superannuation trustee complaints, except for complaints about death benefit distributions
 No later than 45 calendar days after receiving the complaint
RG 271.79
Complaints about superannuation death benefit distributions
 No later than 90 calendar days after the expiry of the 28 calendar day period for objection to a proposed death benefit distribution referred to in s1056(2)(a) of the Corporations Act. RG 271.80-RG 271.85
 
NOTE: There are additional timelines pertaining to credit-related complaints which you can find on page 21 and 22 of the IDR RG 271 document.

 
This Reporting Standard sets out requirements for the provision of information to APRA relating to acquired insurance arrangements within a registrable superannuation entity or defined benefit registrable superannuation entity. SRS 251 also includes SRF 251 which includes reporting and timeframes that AIAA must adhere to.
 
AIAA will not be issuing a new Distribution Agreement. This is a Notification of Intent that we will adhere to the Reporting Standards outlined in SRS 251.

 
The enhanced breach reporting regime will apply from 1 October 2021. AFS licensees must report on different types of ‘reportable situation’.
 
What is a reportable situation?
 
Types of reportable situations include:
 
  • Breaches or ‘likely’ breaches of core obligations that are significant
  • Investigations into breaches or likely breaches of core obligations that are significant
  • Additional reportable situations which include conduct constituting gross negligence in the course of providing a financial service, or serious fraud; and
  • Reportable situations about other licensees.

Note: See RG 78.19 to 78.25 for more information
 
Timeframes for breach reporting
 
Reports must be lodged to ASIC via ASIC’s Regulatory Portal within 30 calendar days of the licensee first knowing that, or being reckless with respect to whether, there are reasonable grounds to believe the reportable situation has arisen. The ’30-day period’ begins when a person with actual or apparent authority to determine whether there is a reportable situation knows (or is reckless thereto) that reasonable grounds exist.
 
This means that for AIAA, we will have 30 days to report any breaches of core obligations, as well as investigations into these that are expected to continue for more than 30 days (therefore becoming a reportable situation on Day 31).
 
For AIAA, any breach of the requirement to act “efficiently, honestly and fairly” could be reportable to ASIC, regardless if there is any impact to customers, and immaterial breaches arising from quality monitoring could also be reportable. Therefore, AIAA expects an increase in the number of reports to ASIC.
 
ASIC will publish annual ‘league’ tables each financial year recording, among other things, licensee names and volume of reported breaches.
 
AIAA will not be issuing a new Distribution Agreement. This is a Notification of Intent that we will adhere to the timeframes of the Breach reporting and related obligations outlined in RG 78.

 
This is part of the amended Insurance Contracts Act (1984) (Cth), effective 5 October 2021. The amendment replaces the existing “Duty of disclosure” with the new “Duty to take reasonable care not to make a misrepresentation”. AIAA is making amendments to our PDS and Application Forms with regards to your client’s obligations and guidance in completing the questions. As a result, you may notice changes to our PDS and Application Forms.
 
The duty to take reasonable care applies to a new contract of insurance as well as when extending or making changes to existing insurance, and when reinstating insurance.
 
AIAA will not be issuing a new Distribution Agreement. This is a Notification of Intent that we will adhere to the Insurance Contracts Act (1984)(Cth).

 
The Unfair Contract Terms (UCT) changes are in response to legislative changes around Unfair Contract Terms (UCT) law in 5 April 2021.
 
AIAA continues to monitor the application of UCT to legacy products. If the environment changes or the residual risk to customers or insurer is reassessed, AIAA may alter its risk mitigation approach.

 
Several updates were made to the TPD definitions in response to the UCT changes in April 2021 and other updates were made in response to ASIC’s Report 633.
 
We have taken on board ASIC’s finding and made improvements to make it easier for those who suffer mental illness to meet the claim requirements, as well as improving the overall outcome for customers.
 
The changes impact the following TPD products:
 
  1. Total & Permanent Disablement (Loss of Independence), generally available to high risk manual occupations on Occupation Category E.
  2. Universal TPD, available to those that do not meet the work requirements for TPD.
  3. Total & Permanent Disablement (Home Duties), available to those that perform full time domestic duties.

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