An insurance broker was suspended by ASIC in May 2012 for not meeting its ongoing financial requirements.  It was found that the insurance broker breached its legal obligations and licence conditions by failing to:

• maintain sufficient base level financial requirements to pay all debts as and when they become due;
• hold at least $50,000 in surplus liquid funds when holding client money or property over $100,000;
• operate the trust account in accordance with financial services laws; and
• lodge financial statements and auditor’s reports by the due date. 

All AFS licensees are required to meet certain financial requirements in accordance with ASIC’s Regulatory Guide 166 (RG166) on an ongoing basis.  The surplus liquid fund requirement of $50,000 is applicable only when an AFS licensee: 

1. is required to hold money in a trust account;
2. holds money or other property on trust for a client or are required to do so under regulation 7.8.07(2) or otherwise; or
3. has the power to dispose of a client’s property under power of attorney or otherwise.

The surplus liquid fund requirement of $50,000 is not required where the value of the money and property for all clients in total is less than $100,000 (RG166.69). 

In calculating whether the money and property has a value of less than $100,000, the following money and property are excluded:

• money that has satisfied a client’s liability on an insurance contract due to a binder agreement or sec. 985Bof the Corporations Act 2001 applies; or
• the value of property where the insurance broker merely holds a document of title, and the client has legal title to the property (RG166.70).

Section 985B relates to the status of amounts paid to insurance brokers in respect of contracts of insurance.  It states that:

• payment by an insured to an insurance broker in relation to an insurance contract is a discharge of liability of the insured to the insurer; and
• payment by an insurer to an insurance broker (such as a claim or return of premium) in relation to a contract of insurance does not discharge any liability of the insurer to the insured.

For an insurance broker, the surplus liquid fund requirement would not be applicable unless money held within its trust account (excluding amounts described in s 985B above) exceeds $100,000.  However, the insurance broker must ensure that the trust account is still administered accordingly including making payments to insurers within 90 days of cover provided by the insurer and notifying the insurer if payment is not received within 7 days after the end of the relevant period. 

Additional financial requirements may apply depending on the activities of the broker.