Sweeping legislative changes could impact industry

With the Royal Commission into misconduct in the banking, superannuation and financial services industry already in full swing, regulatory changes are top of mind for many both within and outside the insurance industry.

There are other areas of regulatory concern though, and a new report from Clyde & Co has highlighted the impact changes to the Corporations Act could have on the financial services industry. Its Regulatory Trends 2018 report notes that regulation continues to change in multiple areas, which is raising risks for businesses.

“With significant changes to both the scope and complexity of regulation in Australia over the last year, business leaders should consider what these changes mean for their organisations and ensure appropriate steps and measures are in place to prepare for the wave of reforms,” the report states.

The report highlights changes to corporations law, which would have “significant implications” for both insurers and their financial services clients as the Government considers sweeping changes to the civil penalties regime. These changes follow recommendations made by the Financial System Inquiry and the ASIC Taskforce Review and could impact the D&O market, the report states.

“We note that any increase in the quantum of penalties would create an increased exposure to Directors and Officers liability insurers,” the report continues.

“Further, the introduction of disgorgement powers is likely to result in an increase in the complexity of calculating an appropriate penalty, which would likely require complex evidence to quantify gains and losses.”

The report also discusses the impact climate change disclosure could have on businesses, as the insurance industry has grabbed headlines recently over its responsibility to both its shareholders and the wider community. It notes that shareholder climate action is becoming more common in many areas, with legal proceedings launched against firms that fail to adequately disclose their climate risk within annual reports.

“There is also a risk for directors that they could be pursued for liability arising from failure to properly account for the impact of climate change on their business, on the basis that climate change risks could be regarded by the Courts as being foreseeable, and therefore relevant, to a director’s duty of care and diligence under Australian law,” the report states.

Source: Insurance Business