Explanatory StatementIssued by the Parliamentary Secretary to the Treasurer
Corporations Act 2001
Corporations Amendment Regulations 2003 (No. 5)
Section 1364 of the Corporations Act 2001 (the Act) provides that the Governor-General may make regulations prescribing matters required or permitted by the Act to be prescribed by regulations or necessary or convenient to be prescribed by such regulations for carrying out or giving effect to the Act.
The Financial Services Reform Act 2001 (FSRA) introduced a uniform licensing, conduct and disclosure regime for financial service providers. Certain persons under the FSRA are afforded increased consumer protections when they are purchasing, being offered, or being provided with advice about, financial products. A two-year transition period was established under the FSRA to allow time for existing industry participants to enter the new regime, in respect of any class of financial service that at the time of the FSRA commencement was carried on by the participant. The two-year transition period does not apply to new industry participants or to new classes of financial service.
Traditionally, medical indemnity cover has been provided by Medical Defence Organisations (MDOs) in the form of discretionary cover, which would generally have attracted the 'retail client' obligations under the FSRA, and the two-year transition period. Under the Medical Indemnity (Prudential Supervision and Product Standards) Act 2003 providers of medical indemnity cover must, from 1 July 2003, provide such cover under contracts of insurance. In the absence of the proposed regulations, this legislation would mean that the FSRA obligations attach to such contracts immediately on and from 1 July 2003. It would also mean that medical indemnity cover would not attract the increased consumer protections available under the FSRA.
The purpose of the regulations, which will commence on 1 July 2003, is generally to restore the medical indemnity product to the position it would have enjoyed but for the requirement in the Medical Indemnity (Prudential Supervision and Product Standards) Act 2003 to provide medical indemnity by way of contractual rather than discretionary cover. The regulations support the package of measures announced by the Prime Minister on 31 May and 23 October 2002, and 19 March and 23 May 2003, to address difficulties being experienced in the medical indemnity industry. In particular, they implement the Government's announced commitments to appropriate product disclosure rules that assist medical practitioners to know and understand the nature of their medical indemnity cover.
Specifically, the regulations amend the Corporations Regulations 2001 to:
- classify the medical indemnity insurance product as a prescribed general insurance product under subparagraph 761G(5)(b)(viii) of the Act, thereby ensuring that medical practitioners who are offered or provided with medical indemnity insurance contracts are classified as 'retail clients' for the purposes of the financial services regime contained in Chapter 7 of the Act;
- exempt the medical indemnity insurance product from compliance with the 'retail client' disclosure obligations described above until the earlier of the medical indemnity provider opting in to the regime or 11 March 2004 (the end of the current transition period for Chapter 7 of the Act; and
- exempt compliance with the licensing obligations of the FSRA until the earlier of the provider opting in or 11 March 2004.
Details of the regulations are set out in the Attachment.
The current Corporations Regulations 2001 at subregulation 1.0.02(1) defines a number of terms used in the context of those regulations.
The proposed regulation would define the medical indemnity insurance product. The definition builds on the definition of 'medical indemnity cover' contained at section 5 of the Medical Indemnity (Prudential Supervision and Product Standards) Act 2003.
The proposed regulation would also define a medical practitioner as someone who is a medical practitioner under subsection 4(1) of the Medical Indemnity (Prudential Supervision and Product Standards) Act 2003.
Subparagraph 761G(5)(viii) of the Act provides that if a financial product is a general insurance product, it is provided to a person as a retail client if it is prescribed in the regulations as such a product.
The proposed regulation would prescribe the medical indemnity insurance product to ensure that it attracts the 'retail client' disclosure obligations under the FSRA.
Subregulation 7.6.01(1) of the Corporations Regulations 2001 provides that the provision of certain financial services is exempt from the requirement to hold an Australian Financial Services licence (AFSL) under the FSRA.
The proposed regulations would introduce a new exemption, being the provision of advice in relation to, or dealing in, a medical indemnity insurance product. However, this exemption would effectively be 'sunsetted,' the regulations providing that the exemption would cease to have effect on the earlier of a person obtaining an AFSL or 11 March 2004.
Subparagraph 1020G(1)(b) of the Act provides that the regulations may exempt a financial product, or class of financial product, from all or specified provisions of the Act that deal with the product disclosure obligations of the FSRA.
The proposed new Division 12 would provide that medical indemnity providers do not have to comply with the product disclosure obligations of the FSRA until the earlier of opting in or the end of the FSRA transition period.