The Australian Securities and Investments Commission (ASIC) has today announced interim class order relief until June 2005 that permits insurance brokers to pay monies that are received in a single payment from a client into an account that must be established and maintained under section 981B of the Corporations Act 2001 (the Act).

The relief, which is provided under Class Order [CO 04/673] Insurance brokers trust accounts under s981B, will only apply where the insurance broker holds an Australian Financial Services (AFS) licence and reasonably believes that at least part of the payment constitutes client monies.

Generally, a licensee may only hold client monies or monies that relate to client transactions in a section 981B account. Non-client monies, such as remuneration payable to the broker, or monies not connected with a financial service or the client’s financial product, must not be paid into these accounts.

To rely on the interim relief, an AFS licensee must:

1. be an insurance broker. This is defined to be the holder of an AFS licence who is authorised under the licence to provide financial services relating to insurance products and who, in providing those services, predominantly acts on behalf of intending insureds;
2. reasonably believe that the payment may comprise, in whole or in part, monies to which subsection 981A(1) of the Act applies;
3. take all reasonable steps to identify non-client monies within five business days of such monies being paid into the account and, if the licensee is not able to so identify such monies within the first five business days, it must continue to take all reasonable steps to identify the monies; and
4. pay out of the account any monies that the broker has identified as non-client monies as soon as reasonably practicable, and in all cases, within five days of identifying the monies.

ASIC is of the view that it will generally be reasonable for an insurance broker to believe that a payment may comprise client monies if it was paid in connection with a financial service provided by the broker or a financial product held by the broker’s client. This is because under the Act, brokers are under a duty to separate their financial services business from any non-financial services business they may also carry on.

‘ASIC has provided this limited relief to afford some commercial convenience and flexibility to insurance brokers and their clients in circumstances where a broker is unable to identify whether a payment may contain client monies, while essentially maintaining the protections over client monies afforded by the trust account regime’, ASIC Executive Director of Financial Services Regulation, Mr Ian Johnston said.

ASIC has decided to grant this relief on an interim basis, until 30 June 2005. This will give brokers time to take immediate steps to ensure that their compliance measures and systems adequately address any risks that non-client monies will be mixed with client monies.

This class order revokes Class Order [CO 04/189], a class order that provided for limited relief to allow the payment of ‘mixed monies’ that the broker knew to contain a mixture of client monies and non-client monies. [CO 04/673] also allows for the payment of such ‘mixed monies’ into a section 981B account and therefore supersedes [CO 04/189].

End of release

Download a copy of Class Order [CO 04/673] Insurance brokers trust accounts under s981B