ASIC Corporations (Life Insurance Commissions) Instrument 2017/510

This ASIC legislative instrument (ASIC Corporations (Life Insurance Commissions) Instrument 2017/510) sets numerical rules and formulas that determine how large commissions or other benefits paid by issuers of life risk insurance products to financial services licence holders and their representatives may be, and it prescribes the amounts that are acceptable as repayments when statutory repayment obligations are triggered. The instrument is made under subsections 963BA(2) and (4) of the Corporations Act 2001 (see s 3) and commences on 1 January 2018 (s 2). It is explicitly limited to determining acceptable benefit ratios for the purposes of subsection 963BA(2) of the Act (s 5(1)), and to determining acceptable repayment amounts for the purposes of paragraph 963BA(3)(b) of the Act (s 6(2)). In short, it supplies the detailed arithmetic and transitional adjustments that operationalise parts of the conflicted remuneration regime in Division 4 of Part 7.7A of the Corporations Act as they apply to life risk insurance commissions.

Mechanically, the instrument does three principal things. First, it sets caps expressed as “acceptable benefit ratios” that limit benefits given at issue and benefits given while a product is continued, distinguishing issue benefits, trailing benefits, and benefits resulting from client initiated increases (s 5(2)-(5)). The base caps are: 0.6 (60 per cent) of the relevant policy cost for an issue benefit that is not a client initiated increase (s 5(2)); 0.2 (20 per cent) for trailing benefits in years after issue where the benefit is not because of a client initiated increase in the current or previous year (s 5(3)); and pro‑rated caps for client initiated increases (60 per cent subject to pro‑rata calculation for the remaining days of the year, s 5(4); 20 per cent for the year after an increase, s 5(5)). Second, it determines “acceptable repayment” amounts that may lawfully be demanded or required by issuers when statutory repayment triggers occur within the first and second policy years (s 6). These rules define various clawback percentages and formulas: 100 per cent clawback in some first‑year and certain second‑year client‑initiated increase circumstances (s 6(3), (6), (14)-(16)); 60 per cent clawback in certain other second‑year triggers for first‑year benefits (s 6(10)-(13)); and $0 acceptable repayment for non client‑initiated second‑year benefits (s 6(17)). Third, the instrument provides transitional relaxations of the issue benefit cap for products issued and client initiated increases occurring in 2018 and 2019, with higher acceptable ratios of 0.8 for 2018 and 0.7 for 2019 in specified circumstances (Part 3, s 7).

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Commonwealth Coat of Arms and ASIC logo

I, Stephen Yen PSM, delegate of the Australian Securities and Investments Commission, make the following legislative instrument.

Date: 31 May 2017

Stephen Yen

Contents

Part 1—Preliminary

1 Name of legislative instrument

5 Acceptable benefit ratio

6 Acceptable repayment

Part 3—Transitional

7 Acceptable benefit ratio

Part 1—Preliminary

1 Name of legislative instrument

This is the ASIC Corporations (Life Insurance Commissions) Instrument 2017/510.

2 Commencement

This instrument commences on 1 January 2018.

3 Authority

This instrument is made under subsections 963BA(2) and (4) of the Corporations Act 2001.

4 Definitions

In this instrument:

Act means the Corporations Act 2001.

client initiated increase means, in relation to a year in which a life risk insurance product is issued or is continued, a change to the terms and conditions of the product:

(a) that results from the holder of the product:

(i) exercising, in writing or by electronic means, an option given to the holder under the product; or

(ii) requesting or agreeing to, in writing or by electronic means, a change to the terms and conditions of the product; and

(b) that results in the policy cost payable for the product for the year being greater than the policy cost that would be payable if the change were not made; and

(i) an increase in the level of cover provided to the person insured under the product, including:

(A) an increase in the sum insured under the product;

(B) an increase in the period during which a benefit is provided to the person insured under the product;

(ii) the addition of another type of cover under the product;

(iii) a change in the basis on which premiums are calculated under the product;

Note: For example, a change from stepped premiums to level premiums.

(iv) a decrease in a waiting period that applies in relation to cover provided under the product or a claim made under the product;

(v) in the case of a product that provides insurance against the insured person losing the ability to work in an occupation:

(A) a change in the type of occupation to which the insurance relates, other than a change that results from the insured person changing their occupation; or

Note: For example, a change from insurance that covered the insured person losing the ability to work in any occupation to insurance that covered the insured person losing the ability to work in a specified occupation.

(B) a change so that the amount payable to the insured person in the event of a claim does not depend on the income of the insured person at or about the time of the claim.

Note: For example, a change in the type of cover provided under an income protection policy from indemnity to agreed value.

policy cost has the same meaning as in section 960 of the Act.

Part 2—Determination

5 Acceptable benefit ratio

(1) This section determines acceptable benefit ratios for benefits given to a financial services licensee, or a representative of a financial services licensee, in relation to a life risk insurance product for the purposes of subsection 963BA(2) of the Act.

Benefit given because of issue of product—60% cap

(2) An acceptable benefit ratio for a benefit given for the year in which the product is issued and that is not given because of a client initiated increase is 0.6.

Trailing benefits—20% cap

(3) An acceptable benefit ratio for a benefit given for a year during which the product is continued and that is not given because of a client initiated increase in that year or the previous year is 0.2.

Benefit given because of a client initiated increase in current year—60% cap

(4) An acceptable benefit ratio for a benefit that is given:

(a) for the year in which the product is issued or for a year during which the product is continued; and

(b) because of a client initiated increase in that year;

is the amount worked out using the following formula:

0.6  days in year

remaining days in year

where:

days in year means the number of days in the year.

remaining days in year means the number of days from the time of the client initiated increase until the end of the year.

Note 1: The benefit ratio for the benefit for the year is the ratio between the benefit and the part of the policy cost (increased policy cost) for the year that is payable because of the client initiated increase: subsection 963B(3A) of the Act. Where a client initiated increase occurs part way through a year, subsection (4) permits an upfront benefit of up to 60% of the increased policy cost (calculated over a 12 month period).

Note 2: For example, if there were a client initiated increase that resulted in an increase in the policy cost of $250 per year, but the client initiated increase occured 292 days into a year, the increase in the policy cost for that year would be $50 (since there would be 73 days remaining in the year): see subsection 963B(3B) of the Act. The acceptable benefit ratio applying in relation to the $50 increase would be (0.6 ×365)/73 = 3.0. Consequently, a benefit of up to $150 could be given in relation to the increase: see subsections 963B(3A) and 963BA(1) of the Act.

Benefit given because of a client initiated increase in the previous year—20% cap

(5) An acceptable benefit ratio for a benefit that is given:

(a) for a year during which the product is continued; and

(b) because of a client initiated increase in the previous year;

is the amount worked out using the following formula:

0.2  relevant days in year

days in year

where:

days in year means the number of days in the year.

relevant days in year means the number of days from 12 months after the client initiated increase until the end of the year.

Note: If a client initiated increase occurs part way through a year, subsection (5) allows a trailing benefit of up to 20% to be paid for the following year in relation to the period from the anniversary of the increase until the end of that following year. In subsequent years, subsection (3) allows a trailing benefit of up to 20% to be paid.

Note 1: The following are examples of how the value of the acceptable benefit ratio is worked out:

(a) A life risk insurance product is issued to the holder on 31 December 2020 with a policy cost for the year of $1,000. An acceptable benefit ratio for a benefit provided to a financial services licensee, or a representative of a licensee, for the initial 12 month period is 0.6: subsection (2). Accordingly, the benefit ratio requirement in subsection 963BA(1) of the Act will be satisfied for this period if the benefit provided to the licensee or representative for the period is no more than $600.

(b) The holder decides to continue the product into a second year and to increase the sum insured. The policy cost for the second year increases to $1,200, with $150 of the increase being because of the decision to increase the sum insured and the remaining $50 because of a CPI increase to the sum insured. The $150 is a client initiated increase and an acceptable benefit ratio of 0.6 applies for a benefit provided for the second year in relation to the $150 increase: subsection (4). Therefore, a benefit of up to $90 may be given in relation to this increase. An acceptable benefit ratio of 0.2 applies for a benefit provided for the second year in relation to the $1,050 balance of the policy cost: subsection (3). Therefore, a benefit of up to $210 may be given in relation to the $1050 balance of the policy cost. Accordingly, the maximum total benefit that may be given for the second year is $300.

Note 2: The examples in this section do not include GST. Depending on the circumstances, a commission given to a licensee or representative may or may not include GST. Where a commission includes a GST component, the GST component is not intended to be a benefit for the purposes of the conflicted remuneration provisions in Division 4 of Part 7.7A of the Act: see paragraph 1.29 of the Explanatory Memorandum to the Corporations Amendment (Life Insurance Remuneration Arrangements) Bill 2016.

6 Acceptable repayment

(1) This section applies in relation to a benefit:

(a) given to a financial services licensee, or a representative of a financial services licensee, in relation to a life risk insurance product for:

(i) the year (first year) in which the product is first issued to a retail client; or

(ii) the year (second year) immediately following the first year; and

(b) for which the obligation referred to in paragraph 963BA(3)(a) of the Act requires repayment of all or part of the benefit.

(2) This section determines amounts that are acceptable repayments for the purposes of paragraph 963BA(3)(b) of the Act.

Note: Where there is more than one reduction in policy cost during the first two years for a product or one or more reductions followed by the product being cancelled or not continued during the first two years, separate acceptable repayment amounts are determined in relation to each reduction, cancellation or non-continuation.

Acceptable repayment where trigger event in first year—100% clawback

(3) The amount worked out in accordance with subsection (4) is an acceptable repayment in relation to a benefit given for the first year in relation to circumstances where, in the first year:

(a) the life risk insurance product is cancelled or not continued; or

(b) the policy cost for the product for the first year is reduced.

Note 1: The circumstances in which the policy cost for the first year is reduced include circumstances in which the policy cost for the first year is increased and subsequently reduced (whether or not the reduced policy cost is less than the initial policy cost).

Note 2: Where there is a benefit (issue benefit) provided in relation to the issue of the product, a further benefit (increase benefit) provided because of a client initiated increase in the first year and a subsequent cancellation, non-continuation or reduction in the first year, subsections (3) to (5) will apply in relation to each of the issue benefit and the increase benefit.

(4) The amount of the acceptable repayment is:

(a) in the case of the product being cancelled or not continued—100% of the adjusted benefit; and

(b) in the case of a reduction in policy cost—the percentage of the adjusted benefit that is equal to the percentage by which the policy cost (determined immediately before and immediately after the reduction) has been reduced.

(5) In subsection (4), adjusted benefit means the benefit less the aggregate of any acceptable repayments in relation to the benefit resulting from any previous applications of subsection (3).

Note: Each application of subsection (3) gives rise to a separate acceptable repayment amount.

Acceptable repayment for first year client initiated increase where trigger event occurs in second year and within 12 months—100% clawback

(6) The amount worked out in accordance with subsection (7) is an acceptable repayment in relation to a benefit given for the first year because of a client initiated increase in relation to circumstances where, within the period of 12 months commencing on the date of the client initiated increase:

(a) the product is cancelled or not continued during the second year; or

(b) the product is continued for the second year at a reduced policy cost; or

(c) the policy cost for the product for the second year is reduced to an amount that is less than the policy cost (initial second year policy cost) for the product for the second year as determined at the start of the second year.

Note: The circumstances in which paragraph (c) applies include where the policy cost immediately before the reduction is less than the initial year policy cost and is then reduced further.

(7) The amount of the acceptable repayment is:

(a) in the case of the product being cancelled or not continued—100% of the adjusted benefit; and

(b) in the case of the product being continued for the second year at a reduced policy cost—the percentage of the adjusted benefit that is equal to the percentage by which the policy cost (determined immediately before and immediately after the reduction) has been reduced; and

(c) in the case of a reduction in policy cost referred to in paragraph (6)(c)—the percentage of the adjusted benefit that is equal to the percentage by which the policy cost (determined immediately after the reduction) has been reduced below the initial second year policy cost.

Note1: For example, for a benefit of $100 that was provided because of a client initiated increase, if the initial second year policy cost were $1,000 and the policy cost were reduced to $800, the amount of the acceptable repayment would be 20% of $100 = $20.

Note 2: Where there is a benefit (issue benefit) provided in relation to the issue of the product, a further benefit (increase benefit) provided because of a client initiated increase in the first year and the policy cost is then reduced in the second year and within 12 months of the client initiated increase, subsections (6) to (9) apply in relation to the increase benefit and subsections (10) to (13) in relation to the issue benefit.

(8) In subsection (7), adjusted benefit means the benefit less the aggregate of any acceptable repayments in relation to the benefit resulting from any previous applications of subsection (3).

(9) If there have been any previous applications of subsection (6) in relation to the benefit, the amount of the acceptable repayment determined under subsection (7) is reduced by the aggregate of the acceptable repayments resulting from the previous applications of subsection (6).

Note: Each application of subsection (6) gives rise to a separate acceptable repayment amount.

Acceptable repayment for other first year benefits where trigger event in second year—60% clawback

(10) The amount worked out in accordance with subsections (11) and (13) is an acceptable repayment in relation to a benefit given for the first year in relation to circumstances where:

(a) any of the following occur:

(i) the product is cancelled or not continued during the second year;

(ii) the product is continued for the second year at a reduced policy cost;

(iii) if the benefit was given because of a client initiated increase—there is a reduction in the policy cost 12 months after the date of the client initiated increase;

(iv) the policy cost for the product for the second year is reduced to an amount that is less than the policy cost (initial second year policy cost) for the product for the second year as determined at:

(A) if the benefit was not given because of a client initiated increase—the start of the second year; and

(B) if the benefit was given because of a client initiated increase—12 months after the date of the client initiated increase; and

(b) if the benefit was given because of a client initiated increase, the cancellation, non-continuation or reduction does not occur within the 12 month period commencing on the date of the client initiated increase.

(11) Subject to subsection (13), the amount of the acceptable repayment is:

(a) in the case of the product being cancelled or not continued—60% of the adjusted benefit; and

(b) in the case of a reduction in policy cost referred to in paragraph (10)(a)(ii) or (iii)—60% of the percentage of the adjusted benefit that is equal to the percentage by which the policy cost (determined immediately before and immediately after the reduction) has been reduced; and

(c) in the case of a reduction in policy cost referred to in paragraph (10)(a)(iv)—60% of the percentage of the adjusted benefit that is equal to the percentage by which the policy cost (determined immediately after the reduction) has been reduced below the initial second year policy cost.

(12) In subsection (11), adjusted benefit means the benefit less the aggregate of any acceptable repayments in relation to the benefit resulting from any previous applications of subsection (3) or (6).

(13) If there have been any previous applications of subsection (10) in relation to the benefit, the amount of the acceptable repayment determined under subsection (11) is reduced by the aggregate of the acceptable repayments resulting from the previous applications of subsection (10).

Note: Each application of subsection (10) gives rise to a separate acceptable repayment amount.

Acceptable repayment for second year client initiated increase where trigger event in second year—100% clawback

(14) An acceptable repayment in relation to a benefit given for the second year in relation to circumstances where:

(a) the benefit was given because of a client initiated increase in the second year; and

(b) the product is cancelled or not continued during the second year or the policy cost for the product for the second year is reduced to an amount that is less than the policy cost for the product for the second year as determined immediately after the client initiated increase;

is the amount worked out in accordance with subsections (15) and (16).

(15) Subject to subsection (16), the amount of the acceptable repayment is:

(a) in the case of the product being cancelled or not continued—100% of the benefit; and

(b) in the case of the policy cost for the second year (determined immediately after the reduction) being reduced below the policy cost for the second year (determined immediately before the client initiated increase)—100% of the benefit; and

benefit × aggregate reduction
new policy cost

where:

aggregate reduction is the amount by which the policy cost for the second year (determined immediately after the reduction) is less than the policy cost for the second year (determined immediately after the client initiated increase).

new policy cost means the part of the policy cost payable for the second year (determined immediately after the client initiated increase) that is payable because of the client initiated increase.

(16) If there have been any previous applications of subsection (14) in relation to the benefit, the amount of the acceptable repayment determined under subsection (15) is reduced by the aggregate of the acceptable repayments resulting from the previous applications of subsection (14).

Note: Each application of subsection (14) gives rise to a separate acceptable repayment amount.

Other second year benefits—no clawback

(17) An acceptable repayment in relation to a benefit given for the second year that was not given because of a client initiated increase in the second year is $0.

Calculating policy cost as at a particular time

(18) For the purposes of this section, in determining the policy cost for a product for the first year or the second year at a particular time, the policy cost for the year at that time is taken to be the amount that would have been the policy cost for the year if the product had been held on the terms and conditions applying at that time for the whole of the year.

Note: For example, if the policy cost for a product for the first year is $1,200 (payable in monthly instalments of $100) and the policy cost is then reduced after 6 months to $60 per month, the policy cost for the first year (determined immediately after the reduction) is taken to be $720 (based on 12 monthly instalments of $60).

Reductions in policy cost because of prescribed circumstances to be ignored

(19) In this section, in determining whether there has been a reduction in policy cost or the amount of a reduction in policy cost, any reduction because of circumstances prescribed for the purposes of subparagraph 963BA(3)(a)(ii) of the Act is to be ignored.

Products in force for exactly 12 months or 24 months

(20) For the purposes of this section, if a product is:

(a) in force for 12 months and then cancelled or not continued into a second year, the product is taken to be cancelled or not continued during the second year; or

Note: This means that subsections (6) to (13) (as applicable) will apply when determining an acceptable repayment in relation to the cancellation or non-continuation of the product.

(b) in force during the 12 month period commencing on the date of a client initiated increase and then cancelled or not continued, the product is taken to be cancelled or not continued on the day immediately following the end of that 12 month period; or

Note: This means that subsections (10) to (13) will apply when determining an acceptable repayment in relation to a benefit given because of the client initiated increase.

(c) in force for 24 months and then cancelled or not continued into a third year, the amount of the acceptable repayment in relation to the cancellation or non-continuation of the product is $0.

Note 1: The following is an example of how the amount of an acceptable repayment is worked out:

(a) A life risk insurance product is issued to the holder on 31 December 2020 with a policy cost of $1,000. The issuer provides a benefit of $600 to a financial services licensee in relation to the product.

(b) The holder decides to continue the product for a second year and to increase the sum insured. The policy cost for the second year increases to $1,200, with $150 of the increase being because of the decision to increase the sum insured (a client initiated increase) and the remaining $50 because of a CPI increase to the sum insured. This issuer provides a benefit of $300 to the financial services licensee in relation to the product for the second year, of which $90 is because of the increase in the sum insured, with the remaining $210 being ongoing commission in relation to the product.

(c) On 30 June 2022 the holder decides to reduce the sum insured. The holder also stops smoking. These changes reduce the policy cost by $100, with $60 of the decrease being because of the decision to reduce the sum insured and $40 of the decrease because of the decision to stop smoking.

(d) The acceptable repayment for the $210 benefit for the second year is $0 because this benefit did not result from a client initiated increase in the second year. The acceptable repayment for the $90 benefit for the second year is calculated as follows. The $40 decrease in the policy cost resulting from the decision to cease smoking is ignored because it is a prescribed circumstance for the purposes of subparagraph 963BA(3)(a)(ii) of the Act: see regulation 7.7A.12EC of the Corporations Regulations 2001. Therefore the acceptable repayment for the $90 benefit is calculated on the basis of a $60 reduction in the policy cost, giving an acceptable repayment of ($90 × $60) ÷ $150 = $36: see subsections (14) and (15).

(e) There is no acceptable repayment amount for the $600 benefit for the first year since the policy cost for the second year is greater than the policy cost for the first year. If the policy had been cancelled in the second year, the acceptable repayment for the $600 benefit would have been 60% of $600 = $360: see subsections (10) and (11).

Note 2: The examples in Note 1 do not include GST. Depending on the circumstances, a commission given to a licensee or representative may or may not include GST. Where a commission includes a GST component, the GST component is not intended to be a benefit for the purposes of the conflicted remuneration provisions in Division 4 of Part 7.7A of the Act: see paragraph 1.29 of the Explanatory Memorandum to the Corporations Amendment (Life Insurance Remuneration Arrangements) Bill 2016.

Part 3—Transitional

7 Acceptable benefit ratio

(1) Despite subsection 5(2), for the purposes of subsection 963BA(2) of the Act, an acceptable benefit ratio for a benefit given to a financial services licensee, or a representative of a financial services licensee, in relation to a life risk insurance product:

(a) for the year in which the product is issued and that is not given because of a client initiated increase; and

(b) where the product is issued between 1 January 2018 and 31 December 2019;

is:

(c) where the product is issued between 1 January 2018 and 31 December 2018—the amount determined by subsection 5(2) as if the reference to “0.6” were a reference to “0.8”; and

(d) where the product is issued between 1 January 2019 and 31 December 2019—the amount determined by subsection 5(2) as if the reference to “0.6” were a reference to “0.7”.

(2) Despite subsection 5(4), for the purposes of subsection 963BA(2) of the Act, an acceptable benefit ratio for a benefit given to a financial services licensee, or a representative of a financial services licensee, in relation to a life risk insurance product:

(a) for the year in which the product is issued or for a year during which the product is continued; and

(b) because of a client initiated increase which occurs:

(i) in that year; and

(ii) between 1 January 2018 and 31 December 2019;

is:

(c) for a client initiated increase which occurs between 1 January 2018 and 31 December 2018—the amount determined by subsection 5(4) as if the reference to “0.6” were a reference to “0.8”; and

(d) for a client initiated increase which occurs between 1 January 2019 and 31 December 2019—the amount determined by subsection 5(4) as if the reference to “0.6” were a reference to “0.7”.

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ASIC Corporations (Life Insurance Commissions) Instrument 2017/510

I, Stephen Yen PSM, delegate of the Australian Securities and Investments Commission, make the following legislative instrument.

Date: 31 May 2017

Stephen Yen

Contents

Part 1—Preliminary

1 Name of legislative instrument

5 Acceptable benefit ratio

6 Acceptable repayment

Part 3—Transitional

7 Acceptable benefit ratio

Part 1—Preliminary

1 Name of legislative instrument

This is the ASIC Corporations (Life Insurance Commissions) Instrument 2017/510.

2 Commencement

This instrument commences on 1 January 2018.

3 Authority

The instrument is conceptually built around a small set of statutory objects and arithmetic concepts. Each concept is defined or applied in the text and determines how the caps and clawbacks work. The principal concepts are:

Benefit given and acceptable benefit ratio. Section 5 implements the statutory concept of an “acceptable benefit ratio” for benefits given to a financial services licence holder or representative in relation to a life risk insurance product, for the purposes of subsection 963BA(2) of the Act. The instrument distinguishes benefits given at issue (issue benefits), trailing benefits for continued products, and benefits given because of client initiated increases. The acceptable benefit ratio is the ratio between the benefit and the part of the policy cost the benefit relates to; the instrument fixes numeric limits (for example 0.6 for an issue benefit not given because of a client initiated increase, s 5(2)).
Policy cost. The instrument repeatedly uses the term “policy cost” and adopts the Corporations Act definition by reference: “policy cost has the same meaning as in section 960 of the Act” (s 4). The policy cost is therefore the denominator against which benefit ratios are measured; how insurers and licensees measure policy cost is central to compliance, and s 6(18) prescribes how to treat the policy cost “as at a particular time”.
Client initiated increase. The instrument provides a detailed, multi‑part statutory definition (s 4). The definition requires that the change to terms be initiated by the holder in writing or electronically, produce an increase in the policy cost payable for the year, and be one of a list of specific types of change such as an increase in sum insured, addition of cover, change in the premium basis, decrease in a waiting period, or a change to occupation basis for income protection. The definition controls which increases attract the higher current‑year caps and which trigger special repayment rules.
Pro‑ration by days. For client initiated increases occurring part‑way through a year the instrument applies a days‑based pro‑ration formula to compute the acceptable benefit ratio for the remainder of that year (s 5(4)). The formula is 0.6 × days in year ÷ remaining days in year, so the permissible benefit can exceed 60 per cent of the (annualised) increased policy cost for the short remaining period. For trailing benefits relating to a previous year’s client initiated increase, s 5(5) applies a formula that is 0.2 × relevant days in year ÷ days in year, where relevant days in year means days from 12 months after the increase until year end.
Acceptable repayment and adjusted benefit. Section 6 establishes the amounts acceptable as repayments for the purposes of the Act’s repayment paragraph. The instrument introduces “adjusted benefit” as the benefit less the aggregate of any acceptable repayments previously applied, so multiple reductions and cancellations produce iterative calculations. The instrument prescribes different percentage multipliers and formulas depending on the timing and type of trigger event and whether the benefit was due to a client initiated increase, including 100 per cent, 60 per cent, or nil repayments under different circumstances.
Prescribed circumstances excluded. The instrument instructs that certain reductions in policy cost that occur because of prescribed circumstances are to be ignored when determining reductions that trigger repayments (s 6(19)). It cites the Corporations Regulations 2001, regulation 7.7A.12EC, as an example of such a prescribed circumstance, and gives a worked example where a reduction due to the insured stopping smoking is ignored (s 6 Note 1 and s 6(19)).
Transitional uplift. The instrument provides transitional increases to the acceptable benefit ratio for issue benefits and client initiated increases occurring in 2018 and 2019. For products issued in 2018 the issue cap is treated as 0.8 rather than 0.6 and in 2019 as 0.7 (s 7(1)(c)-(d)). Equivalent transitional increases apply to client initiated increases in the years 2018 and 2019 (s 7(2)(c)-(d)).

These core concepts feed into compliance and operational tasks: precise identification of the event that gave rise to a benefit, correct aggregation and apportionment of policy cost and benefit amounts, tracking of dates to apply the pro‑ration formulas and the 12‑month windows for repayment triggers, and the iterative computation of adjusted benefits when multiple reductions occur.

The instrument names the principal actors and places obligations or effects on a small set of parties and systems. The primary affected parties are:

Financial services licence holders and their representatives. The instrument is expressly concerned with benefits “given to a financial services licensee, or a representative of a financial services licensee” in relation to life risk insurance products (s 5(1)). These persons receive the benefits, must ensure benefits they accept do not exceed the acceptable benefit ratios, and may have repayment obligations triggered by changes to policy costs or cancellations under subsection 963BA(3) of the Corporations Act, with acceptable repayment amounts determined by this instrument (s 6).
Life risk insurance product issuers. Issuers determine the benefits (commissions) payable to licensees and representatives and will implement any repayment or clawback provisions in their contracts and systems. The instrument determines acceptable benefit ratios for the purposes of the Act and acceptable repayment amounts which issuers may enforce or require licensees to repay when triggers occur (s 6(1)-(2)).
Retail clients who hold life risk insurance products. The instrument indirectly affects retail clients because it alters the structure and sizing of distribution remuneration. It distinguishes client initiated increases from other events (s 4 definition) and subjects benefits tied to client behaviour to different caps and clawback regimes. These rules will shape adviser behaviour and the structure of offers presented to clients, for example by changing how advisers are remunerated at issue vs trailing commissions and when client‑initiated increases occur.
Intermediary systems and compliance functions. Systems that calculate and pay commissions, monitor policy costs and reductions, prepare invoices for acceptable repayments, and record client instructions are affected. The instrument requires day‑accurate tracking for pro‑rations (s 5(4), s 5(5)), iterative adjusted benefit computations (s 6(5), (8), (12), (16)), and treatment of policy cost “as at” a time (s 6(18)).
Insurers’ and licensees’ tax and accounting teams. The instrument’s notes refer to GST treatment and cite the Explanatory Memorandum to the amending Bill (s 5 Note 2; s 6 Note 2). The instrument clarifies that whether a benefit includes GST is a separate issue, but that the GST component is not intended to be a benefit for conflicted remuneration purposes. That note indicates tax and accounting treatment is relevant when determining the monetary sizes of benefits and repayments.

Who pays? Issuers pay benefits to licensees or representatives; issuers may require repayments from the recipient of the benefit where repayment triggers are met under the Act and the instrument establishes the acceptable repayment amounts that can be required (s 6(2) and s 6 generally). Who decides? The instrument refers decisions of acceptance and repayment to the statutory rules and contract terms, but it places the arithmetic constraints on the issuer’s and licensee’s contractual arrangements by defining maximum acceptable ratios and acceptable repayment amounts for compliance with the Act.

Concentrated benefits and distributed costs. Benefits are concentrated with licensees and their representatives; repayment risk and compliance cost are concentrated on both issuers and recipients who must track and apply the instrument’s formulas. Diffuse costs appear in administrative burdens across many product lines and the necessity to upgrade systems and recordkeeping to apply day‑pro rata and to ignore prescribed reductions. The instrument’s transitional relaxation for 2018 and 2019 concentrates a temporary benefit on issuers and intermediaries dealing with products issued or increased in those years (s 7).

The instrument does not create freestanding duties of conduct in the manner of primary legislation; rather, it specifies numeric limits and formulas that give effect to duties and repayment rights created by the Corporations Act. The key operational duties and rights that follow from the instrument are:

Duty to respect acceptable benefit ratios at issue and on continuation. For the purposes of subsection 963BA(2) of the Corporations Act, benefits provided to licence holders or representatives must not exceed the acceptable benefit ratios determined by this instrument (s 5(1)-(5)). This means issuers and recipients must ensure that the ratio between the benefit and the relevant policy cost does not exceed the specified ratio: for example, 0.6 for an issue benefit not related to a client initiated increase (s 5(2)), 0.2 for trailing benefits when not related to recent client initiated increases (s 5(3)), and pro‑rated caps for client initiated increases (s 5(4)-(5)).
Right of issuer to recover acceptable repayments, and duty of recipient to repay where the Act requires repayment. Section 6 applies to benefits given in the first or second year where the Act’s paragraph 963BA(3)(a) creates a repayment obligation, and subsection 6(2) determines the amounts acceptable for the purposes of paragraph 963BA(3)(b). Issuers who are entitled to repayment under the Act may require repayment up to the acceptable repayment amount determined by this instrument. The instrument therefore operationalises the magnitude of clawbacks that may be exercised.
Duty to calculate adjusted benefits and apply iterative reductions. The instrument requires adjusted benefit calculations where multiple repayments apply. Adjusted benefit is defined in s 6(5), (8), (12) and is equal to the benefit less the aggregate of any acceptable repayments previously applied to that benefit. Each application of the repayment rules gives rise to a separate acceptable repayment amount, and subsequent calculations deduct earlier repayments (s 6(5), (9), (13), (16)). This creates a duty on parties to track prior repayments and apply the iteration correctly when multiple reductions or cancellations occur.
Duty to determine when a change is a client initiated increase. The definition in s 4 requires a change to be initiated by the holder in writing or electronically; to increase the policy cost for the year; and to be one of the enumerated types of change such as increasing sums insured, adding cover, changing premium basis, decreasing waiting periods, or certain changes to occupation cover. Parties must record and verify the client instruction and identify whether the change satisfies all elements of the definition before applying the client‑initiated increase cap or the different repayment rules tied to client‑initiated increases.
Right to ignore reductions for prescribed circumstances. Section 6(19) requires that reductions in policy cost that are “because of circumstances prescribed for the purposes of subparagraph 963BA(3)(a)(ii) of the Act” be ignored when determining whether a reduction has occurred or the amount of reduction. The instrument cites regulation 7.7A.12EC as an example; the instrument’s worked example shows an insurer ignoring a $40 reduction due to cessation of smoking when calculating acceptable repayment (s 6 Note 1). Parties therefore have a right to discount certain risk‑related adjustments when computing clawbacks, subject to the existing regulations.
Right to treat policy cost “as at” a time for computations. Section 6(18) prescribes that policy cost for a year at a particular time is the amount that would have been payable for the year had the product been held on the terms applying at that time for the whole year. This rule gives both issuers and recipients a prescribed basis for measuring policy cost immediately before and after reductions when applying repayment formulas.
Transitional rights for 2018 and 2019. Part 3 gives issuers and recipients transitional rights to higher acceptable benefit ratios for products issued or client initiated increases occurring in 2018 and 2019: for 2018 the issue cap is treated as 0.8 and for 2019 as 0.7 (s 7(1)(c)-(d)), and equivalent adjustments apply to client initiated increases in those years (s 7(2)(c)-(d)).

These duties and rights are tightly formulaic. Parties’ operational duties derive from having to ensure the arithmetic outcomes required by the instrument are applied whenever benefits are given, whenever policy costs change in the first two years, and whenever a client initiated increase occurs. The instrument places the mechanics of compliance in the hands of the issuer and the recipient, with the Act providing the statutory repayment trigger and this instrument providing the permissible sizes and formulas for compliance.

The instrument itself does not prescribe criminal penalties or civil penalties; it defines “acceptable” ratios and repayments for the purposes of the Corporations Act provisions to which it refers. Enforcement of the numerical limits and the repayment arrangements therefore occurs through the Act’s primary enforcement mechanisms and regulatory oversight, not by the instrument alone. Key enforcement and sanctioning mechanisms that are implicated by the instrument include:

Compliance with subsection 963BA(2) and paragraph 963BA(3) of the Act. The instrument is made under subsections 963BA(2) and (4) and expressly supplies the acceptable benefit ratios and repayment amounts “for the purposes of” those parts of the Act (s 3; s 5(1); s 6(2)). Any failure to conform to the acceptable benefit ratios or to apply the statutory repayment obligation correctly may therefore attract enforcement consequences under the Corporations Act. The instrument’s numeric rules will be used by ASIC and by courts as the benchmark when assessing whether arrangements comply with the Act.
ASIC regulatory action. ASIC has supervisory authority over licence holders and issuers in relation to conflicted remuneration provisions within Part 7.7A. The instrument provides the arithmetic criteria ASIC will use to judge acceptable benefits and repayments. While the instrument does not specify penalty amounts, ASIC enforcement options under the Corporations Act include infringement notices, enforceable undertakings, civil penalties, compensation orders, and potentially criminal prosecution for serious contraventions of the Act; these powers are exercised under the Act, not under this instrument.
Contractual enforcement and recovery. Section 6 determines acceptable repayment amounts that an issuer may recover where the Act gives an issuer the right to demand repayment or to withhold amounts. The instrument therefore affects the contractual clawback terms that issuers will implement and the range of enforceable recovery amounts. The iterative adjusted benefit rules (s 6(5), (8), (12), (16)) determine how much an issuer may legitimately demand when multiple reductions occur.
Recordkeeping and audit exposure. Because the instrument requires day‑accurate pro‑rations and iterative adjusted benefit computations (s 5(4), s 6(11), s 6(15)), poor recordkeeping, incorrect calculation of policy cost as at a particular time (s 6(18)), or misclassification of client initiated increases can expose licensees and issuers to regulatory scrutiny and enforcement action. The instrument’s notes about GST and cross‑references to the Corporations Regulations suggest additional tax and reporting angles that may be audited.
Interaction with regulations. Section 6(19) requires ignoring reductions caused by prescribed circumstances. That provision references the Corporations Regulations (regulation 7.7A.12EC). Enforcement action may turn on correct application of both the instrument and those regulations. A failure to identify and properly apply the prescribed‑circumstance exclusions when calculating a reduction could change the size of a permitted repayment and thereby affect compliance.

Because the instrument defines the acceptable quantum of benefits and repayments for compliance with specified sections of the Corporations Act, enforcement consequences will be determined by how ASIC and the courts apply the Act, using the instrument as the statutory yardstick. The instrument itself does not prescribe penalty types or amounts; those are in the underlying Act and related regulations.

The instrument is a subordinate legislative instrument that operates in the statutory framework of the Corporations Act 2001 and the Corporations Regulations 2001. The instrument repeatedly cross‑references the Act and Regulations and therefore must be read alongside them. The principal interactions are:

Corporations Act 2001. The instrument is expressly made under subsections 963BA(2) and (4) of the Act (s 3). It determines acceptable benefit ratios for the purposes of subsection 963BA(2) (s 5(1)) and acceptable repayment amounts for the purposes of paragraph 963BA(3)(b) (s 6(2)). It also refers to the statutory definition of policy cost in s 960 by saying “policy cost has the same meaning as in section 960 of the Act” (s 4). Consequently, the instrument is subordinate to, and operationalises, the detailed prohibited and regulated conflicted remuneration framework in Division 4 of Part 7.7A of the Act. Any legal question about the instrument’s application or validity will arise under the Act’s delegated‑legislation powers and the Act’s enforcement provisions.
Corporations Regulations 2001. The instrument requires that reductions “because of circumstances prescribed for the purposes of subparagraph 963BA(3)(a)(ii) of the Act” be ignored when calculating reductions in policy cost (s 6(19)). The instrument cites regulation 7.7A.12EC as an example of such a prescribed circumstance. Those regulations therefore modify the universe of reductions that cause clawbacks under the repayment rules. Practitioners must therefore consult the Corporations Regulations to identify which reductions are prescribed and to apply the instrument correctly.
Tax law and GST. The instrument includes notes that discuss GST treatment. In particular, s 5 Note 2 and s 6 Note 2 refer to paragraph 1.29 of the Explanatory Memorandum to the Corporations Amendment (Life Insurance Remuneration Arrangements) Bill 2016 and state that, depending on circumstances, a commission may or may not include GST and that the GST component is not intended to be a benefit for the purposes of the conflicted remuneration provisions. Those notes are not operative law but they indicate that GST calculation and the treatment of GST components in commissions are relevant matters that interact with the instrument. Parties must align benefit and repayment calculations with tax treatment.
Contract law. Issuers and licensees will implement the instrument’s rules through contractual terms such as commission schedules and clawback clauses. The instrument defines acceptable repayment amounts for statutory purposes; contracts that require repayments in excess of the instrument’s acceptable amounts may raise enforceability issues or regulatory concerns. Conversely, contracts that attempt to circumvent statutory repayment obligations by off‑book or non‑monetary arrangements may contravene the Act.
Administrative law. The instrument is a legislative instrument subject to the usual administrative law controls. ASIC’s exercise of enforcement or supervisory powers under the Act in relation to compliance with the instrument will be subject to administrative law principles, judicial review and the Act’s internal appeal and enforcement mechanisms.

In practice, compliance requires concurrent attention to the Corporations Act provisions that create the prohibition and repayment obligations, the Corporations Regulations that identify excluded reductions, tax law for GST treatment, and contractual provisions that operationalise payments and repayments. The instrument provides the arithmetic link between those bodies of law and the commercial mechanics of distribution remuneration in life risk insurance.

The instrument itself records its making and commencement information and contains transitional arrangements that operate as time‑limited amendments to the base acceptable benefit ratios for the 2018 and 2019 calendar years. Key historical and amendment elements in the instrument text are:

Date and commencement. The instrument is dated 31 May 2017 and states it commences on 1 January 2018 (s 2, opening lines and signature block). There are no further internal amendments recorded in the body of the instrument beyond the transitional provisions in Part 3.
Transitional adjustments for 2018-2019. Part 3, s 7, temporarily alters the acceptable benefit ratios set in s 5 for products issued, and for client initiated increases, occurring in 2018 and 2019. Specifically, s 7(1) and s 7(2) instruct that for products issued between 1 January 2018 and 31 December 2018 the amount determined by s 5(2) or s 5(4) is to be calculated as if “0.6” were “0.8”; for products or increases between 1 January 2019 and 31 December 2019 the reference is to be treated as “0.7” in place of “0.6”. Those transitional provisions constitute time‑limited modifications to the baseline caps and thus form part of the instrument’s amendment history for the initial two years of operation.
No further internal amendments recorded. The instrument contains no additional variation or repeal history in its own text. It does not record later variations, revocations, or amendments within the instrument itself. Any subsequent amendment would appear in the legislative instrument register or in separate instruments amending or repealing ASIC Corporations (Life Insurance Commissions) Instrument 2017/510; none are contained in the material provided.
Relationship to enabling legislation. The instrument was made under delegated legislative power in the Corporations Act and thus its scope and content reflect the policy and statutory framing of the enabling provisions in subsections 963BA(2) and (4). The transitional arrangements reflect policy choices made at the time the instrument was made, namely a gradual step down from higher initial caps in the first two years of operation to the baseline caps set in s 5.

For legal practitioners preparing compliance or operational changes, the key amendment history to note is the transitional uplift in 2018 and 2019 embedded in Part 3; beyond that the instrument as provided contains no further amendments. Any changes made subsequently to the Act, the Corporations Regulations, or separate instruments that amend or revoke this instrument are not reflected here and must be checked against the up‑to‑date legislative instrument register.

The instrument text does not include or cite any litigation history. It contains no references to judicial decisions, tribunals or administrative appeals and provides no summaries of case law. The content of the instrument is purely regulatory and formulaic: it sets acceptable benefit ratios and acceptable repayment amounts for the purposes of specified provisions of the Corporations Act.

Because the instrument is a subordinate legislative instrument, any litigation that engages its content would necessarily be litigation about the application or validity of the instrument in particular factual circumstances, or litigation that tests whether conduct or contractual arrangements comply with the instrument as applied in conjunction with the Corporations Act and relevant regulations. The instrument itself does not identify any disputes, contested interpretations, or prior judicial construction. Therefore:

There is no litigation recorded in the instrument to cite as precedent. The instrument makes no mention of cases, and it supplies examples rather than reported decisions.
Potential areas that could give rise to litigation or disputes include factual or legal disagreements about whether a change qualifies as a “client initiated increase” under the definition in s 4; disputes about the correct computation of policy cost as at a particular time under s 6(18); disagreements about which reductions fall within the “prescribed circumstances” that must be ignored under s 6(19) and the Corporations Regulations; and questions about the proper iterative computation of adjusted benefits where multiple reductions or cancellations have occurred (s 6(5), (8), (12), (16)).
Litigation questions might also involve interpretation of the pro‑rata formula for client initiated increases in s 5(4) where events occur at or around midnight or across time zones; or the treatment of GST components in benefits where there is a dispute about whether a GST component is part of the benefit for conflicted remuneration purposes, although the instrument’s notes indicate the GST component is not intended to be a benefit for those purposes (s 5 Note 2; s 6 Note 2).

In the absence of reported cases in the instrument, practitioners should be prepared for disputes to centre on factual determinations (dates, written/electronic client instructions, precise policy cost computation) and the application of the instrument’s iterative arithmetic rules. Any litigation that arises in future would involve court or tribunal interpretation of the instrument in conjunction with the Corporations Act and Regulations; because none are recorded here, users must consult legal databases and ASIC guidance to locate any subsequent judicial or administrative decisions that interpret the instrument.

This instrument is formulaic but contains several detail‑sensitive traps and operational pitfalls that can materially affect the size of permitted benefits and permissible repayments. The main “gotchas” to watch for are:

The pro‑rata formula for client initiated increases can allow what looks like a large upfront payment for a short remaining period. Section 5(4) sets the acceptable benefit ratio for a client initiated increase in the current year at 0.6 × days in year ÷ remaining days in year. Because remaining days in year in the denominator can be small, the acceptable ratio can be greater than 1.0, allowing an upfront benefit that exceeds the annualised increased policy cost for that remaining period. The instrument explicitly gives an example where an increase 292 days into the year yields an acceptable ratio of 3.0 and a permitted benefit of $150 on a $50 pro‑rata policy cost increase (s 5 Note 1). Systems must calculate remaining days precisely and guards must be in place to avoid unintended large upfront benefits.
Definitions require documentary proof. The “client initiated increase” definition requires that the holder exercise an option or request or agree to a change in writing or by electronic means (s 4). Oral instructions do not meet that definition. Licensees and issuers must retain the written or electronic trail that proves the client initiated the change; otherwise a benefit may be treated as not client initiated and therefore attract different caps or repayment consequences.
Adjusted benefit iteration reduces future repayments. When multiple reductions occur, s 6 defines “adjusted benefit” as the benefit less aggregate acceptable repayments previously applied. That iterative structure means repayments applied earlier reduce the base on which later repayments are calculated. Practically, this requires a running ledger for each benefit and careful application of prior repayment records in subsequent computations, or mistakes will produce over‑ or under‑recoveries.
Policy cost “as at” a time can produce non‑intuitive bases. Section 6(18) requires that policy cost for a year at a particular time is the amount that would have been payable for the year if the product had been held on the current terms for the whole year. The example in s 6(18) shows monthly instalment changes being annualised. This rule can lead to significantly different computation bases if premium frequency, stepped to level changes, or mid‑year adjustments occur. Systems must compute the hypothetical annualised policy cost annually for each relevant date used in the repayment formula.
Prescribed circumstances can reduce clawbacks unexpectedly. Section 6(19) instructs ignoring reductions in policy cost that arise because of prescribed circumstances. The illustration in s 6 Note 1 where a $40 reduction for cessation of smoking is ignored highlights that some risk factor adjustments do not generate a repayment trigger. Practitioners must consult the Corporations Regulations (for example reg 7.7A.12EC) to identify precisely which reductions are excluded; failing to do so may lead to over‑claiming clawbacks and regulatory challenge.
Exact 12‑month and 24‑month thresholds alter classification. Section 6(20) treats products that are in force for exactly 12 months and cancelled as though they were cancelled in the second year, and treats products in force for exactly 24 months as producing no acceptable repayment on cancellation into a third year. These precise temporal thresholds can change which repayment provisions apply. Accurate computation of the number of days in force is required; errors at these boundaries alter the applicable subsection and the permissible repayment amount.
Second year non client‑initiated benefits have $0 clawback. Section 6(17) makes clear that benefits given for the second year that were not given because of a client initiated increase attract an acceptable repayment of $0. This means clawbacks operate differently for first‑year benefits and for second year benefits depending on their origin. Mistakenly treating a second year ongoing commission as clawable could lead to contested recovery demands.
GST component guidance is advisory rather than binding. The instrument notes that where a commission includes a GST component the GST component is “not intended to be a benefit for the purposes of the conflicted remuneration provisions” (s 5 Note 2; s 6 Note 2). Those notes reference the Explanatory Memorandum; however the notes are not operative law. Parties must reconcile tax accounting for GST with statutory definitions and be cautious in relying on the EM note alone if disputes arise.
Transitional higher caps are limited and date‑sensitive. Part 3 gives higher acceptable ratios for products issued or client initiated increases during 2018 and 2019. These are time‑bounded adjustments; misclassifying the date of issue or the date of client instruction could falsely entitle a party to the higher ratio or subject them to a lower cap.
Multiple benefits per product create multiple repayment lines. Where an issuer pays separate benefits such as an issue benefit and a separate increase benefit (because of a client initiated increase), s 6 Notes and paragraphs make clear each benefit is treated separately and may attract separate acceptable repayments. Collecting repayments therefore requires per‑benefit computation rather than a single product level proportional recovery.

These “gotchas” are largely administrative and documentary. Errors are likely to arise from poor data capture of dates and written/electronic client instructions, incorrect annualisation of policy cost as at a particular time, and failure to apply the prescribed‑circumstance exclusions. The instrument’s worked examples are helpful but do not substitute for robust systems that implement the day‑accurate and iterative computations mandated by the instrument.

Compliance with this instrument requires changes in processes, systems, recordkeeping and contractual documentation. The instrument’s rules are arithmetic and date sensitive, so compliance is operational as much as legal. The following compliance checklist and practical steps map the principal requirements:

Map the instrument to affected products and agreements
- Identify all life risk insurance products issued to retail clients and identify which benefits (issue, ongoing, increase‑related) are payable to the licence holder or representative.
- For each commission schedule, map whether the commission is an issue benefit, a trailing benefit, or an increase benefit and ensure the contract language ties each benefit to the correct category under s 5 and s 6.
Implement precise date and instruction capture
- Ensure every client initiated increase is evidenced in writing or electronic form, as required by the “client initiated increase” definition (s 4). Capture the precise timestamp and retain the document or electronic trace.
- Capture policy issue dates, dates of continuations, dates of all client initiated increases, and any dates of policy cost adjustments, cancellations or reductions with day accuracy to enable pro‑rata and 12‑month window computations.
Reconfigure commission calculation systems
- At issue: apply the acceptable benefit ratio determined by s 5(2) (base 0.6) except where transitional adjustments in s 7 apply for 2018 and 2019. For 2018 treat 0.6 as 0.8 and for 2019 as 0.7 when applicable (s 7(1)).
- For trailing benefits: ensure the ongoing commission does not exceed the 0.2 acceptable benefit ratio when not tied to a client initiated increase (s 5(3)).
- For client initiated increases: build the pro‑rata formula in s 5(4) for the current year and the s 5(5) calculation for the following year’s trailing component.
Build repayment and clawback logic
- Implement the acceptable repayment formulas in s 6. Cover the core scenarios: first year cancellation or reduction (100% or pro‑rata per s 6(3)-(4)); first year client initiated increases followed by second‑year triggers within 12 months (100% clawback per s 6(6)-(7)); first year benefits subject to second‑year triggers outside 12 months (60% clawback per s 6(10)-(11)); second year client initiated increases with second‑year trigger formulas and 100% in certain outcomes (s 6(14)-(16)); and second year non client‑initiated benefits where the acceptable repayment is $0 (s 6(17)).
- Ensure the system calculates adjusted benefit iteratively by subtracting aggregate prior acceptable repayments before applying the formula for any subsequent reduction (s 6(5), (8), (12), (16)).
Apply policy cost computation rules
- When comparing policy costs immediately before and after a reduction determine the “policy cost for the year at that time” using the method in s 6(18): treat the policy cost as the annual amount that would have been payable if the product had been held on the terms applying at that time for the whole year. Annualise instalments where necessary.
- Where reductions are claimed to be caused by prescribed circumstances, verify whether the relevant reduction is excluded under the Corporations Regulations; if so, ignore it for repayment calculations as directed by s 6(19).
Update contract clauses and documentation
- Amend commission agreements and distributor contracts to reflect the acceptable benefit ratios and to document the issuer’s right to seek repayment in the amounts permitted by the instrument and the Act. Clearly set out how pro‑rata and adjusted benefit computations will be done and documented.
- Add clauses requiring retention of client written or electronic instructions and define the events that constitute client initiated increases in consistent language with s 4.
Tax and GST coordination
- Coordinate with tax advisers to determine whether the commission includes GST and how that GST component is treated in accounting. Note the instrument’s explanatory notes indicating intention that GST components are not a conflicted remuneration benefit but record the tax position and document the treatment for audit purposes (s 5 Note 2; s 6 Note 2).
Reporting, audit trail and governance
- Build an auditable ledger which links each benefit to the corresponding part of policy cost, the exact dates used in calculations, any prior repayments, and the supporting documents for client initiated increases and reductions ignored as prescribed circumstances.
- Implement a compliance checklist and internal approval process for commission payments and for recovery notices. Retain evidence of calculations and communications in case of ASIC review.
Training and stakeholder communication
- Train sales teams, product managers, and back office staff on the differences between client initiated increases and other changes, on the pro‑rata calculation method, and on the 12‑month windows that determine which repayment rules apply.
- Communicate to distribution partners and representatives how the new caps and clawbacks operate and what documentation they must collect and retain.
Edge‑case handling and escalation

Define escalation procedures for ambiguous facts such as contested dates of instruction, simultaneous reductions and increases, or when an insured’s change could be characterised both as a prescribed circumstance and a client initiated change.
Establish legal review triggers for complex sequences of events that would lead to multiple iterated adjusted benefit calculations.

Practical examples and checks to run:

Test the pro‑rata formula on sample increases late in the policy year to ensure permitted benefit calculations do not exceed intended tolerances (s 5(4) example).
Run scenarios where a product is exactly 12 or 24 months in force to confirm the instrument’s special rules in s 6(20) are applied correctly.
Simulate repeated reductions and cancellations to confirm iterative adjusted benefit reduction logic reduces subsequent acceptable repayments as intended (s 6(5), (9), (13), (16)).

Following these steps will align operations with the instrument’s arithmetic and documentary requirements. The central compliance workstreams are recordkeeping of client instructions, day‑accurate computation of pro‑rata and annualised policy costs, iterative calculation of adjusted benefits where multiple events occur, and robust contractual and tax coordination to ensure commissions and repayments are enforceable and properly accounted for.

ASIC Corporations (Life Insurance Commissions) Instrument 2017/510

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