The Final Report of the Financial Services Royal Commission called for a follow-up review into the ethics and standards in the financial services sector. In response to this, on 21 April 2021 at the FSC Life Insurance Summit, Financial Services Minister Jane Hume announced that the Government will commission a review of the financial advice sector to take place in 2021-2022. This review will primarily assess the quality, affordability and accessibility of financial advice – known as the Quality of Advice Review. This review was largely expected by the industry, particularly given the affordability and accessibility issues facing the advice sector due to increasing challenges with the implementation of general advice following the High Court decision in Westpac Securities Administration Limited v ASIC  HCA 3.
However, in a surprise addition, in order to remove the need for a separate review, Minister Hume announced that the review will also assess the 2018 Life Insurance Framework (LIF) reforms – known as the LIF Review. The LIF Review was not expected before June 2022. Many will recall that the Royal Commission Final Report recommended:
Recommendation 2.5 – Life risk insurance commissions
When ASIC conducts its review of conflicted remuneration relating to life risk insurance products and the operation of the ASIC Corporations (Life Insurance Commissions) Instrument 2017/510, ASIC should consider further reducing the cap on commissions in respect of life risk insurance products. Unless there is a clear justification for retaining those commissions, the cap should ultimately be reduced to zero.
The outcome of the LIF Review has the potential to have a significant impact on many distribution arrangements in the life insurance sector, and any reduction in the LIF commission caps will require a review and reassessment of those arrangements to ensure ongoing compliance. This is especially given that it is not expected that any further grandfathering regime will be introduced.
The review will be undertaken by Treasury, rather than ASIC, and any data already collected by ASIC for what was expected to be an independent review into the LIF reforms in 2022 will be provided to Treasury.
It is unclear at this stage whether the Government is considering any review in respect of Royal Commission Recommendation 2.6, which recommended consideration of whether the exemption from the conflicted remuneration regime for general insurance products should remain in place. Any restriction or removal of this exemption also have the potential to significantly impact general insurance distribution arrangements, which are steadily increasing due to M&A activity in the general insurance sector.
If you have any questions about the conflicted remuneration regime, get in touch with one of our team members below.