Financial Services

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 SPONSORED POST
Most banks have long memories and it’s those past experiences, which in all probability resulted in the writing off of a bad debt, that tend to have a strong influence on the executives responsible for writing the banks lending policy.
One such area of contention is the issuing of second mortgages and in most cases the approach by banks is consistent, driven by those past bad experiences.
So while there are sound arguments as to why it might actually be in the banks interest to allow a second mortgage, most credit/risk manager default to a position that will not impact on their security position and it takes some very careful negotiations to convince them to do otherwise. So lets look at the reasons why they have those concerns.
The bank does not think the developer has enough money – as the saying goes “If you want it they won’t give it to you and if you don’t want it they throw it at you”. It is true in most regards, that when considering a project a bank wants to be working with a sponsor who has the ability to invest the full equity requirement, also referred to as ‘skin in the game’, and a capacity write a cheque in the event of any unforseen cost overruns.
However, many smart sponsors choose to use Other People’s Money (OPM), usually so that they can get the best return on their funds by investing across multiple opportunities. So it is very important that the financial strength and experience of the sponsor can be demonstrated to the bank even if it is not all to be committed to the project in question.
Utilising second mortgage funding in order to expand the number of projects they can undertake is a smart way for a sponsor to leverage their return on equity provided they can show an ability to meet any unforseen financial pressures along the way. It is critical to give the bank a clear understanding of why the second mortgage funding is being used but also provide statements of position, group cash flows and approved standby arrangements to support the sponsor’s ability to meet their ongoing commitments to the project in question.
The Bank does not want any potential impediments to it realising on its security – In the event that things go wrong during a development, the bank will in most instances look to recover its exposure by disposing of the security via a quick sale rather than undertaking a lengthy workout. Even in the case of a development project, banks do not want to ‘take control’ of a project unless absolutely necessary and will usually appoint a receiver or administrator to undertake the exercise of completing the development and sale as soon as practicable with the minimum of additional expenditure.
Their concern is that where there is a second mortgage in place (and dependant on the terms of any priority agreement in place), the potential exists for that mortgagee to frustrate the actions of the bank by arguing that those actions prejudice their security position. Alternatively, while there may be no default or cause for action on the banks part, the second mortgagee may decide to take action under its securities which forces the banks hand to either take its own action in priority to the second mortgage or pay out the second mortgagee in order to gain full control. Both of these scenarios played out during the GFC and previous market corrections, continuing to make all banks hesitant about transactions involving second mortgages.
One way to address these issues is to have a reputable second mortgage provider who the banks are comfortable with and trust not to take any extreme actions during the life of the project. Additionally, the banks will require the second mortgagee to sign a priority agreement which in effect cedes all of its rights to the first mortgagee while its debt exists, effectively preventing the second mortgagee taking any action that the first mortgagee does not want to occur.
Developers skin in the game – As previously mentioned, all financiers, be they first or second mortgage providers want to see that the developer has an appropriate amount of their own “risk” money in the project – the view being that the developer will be more likely to act in the right way if they have an appropriate amount of their own cash at risk in the project. The current view is that the developer must be providing at least 10% of the required capital stack in a project.
In the eyes of the banks, this is a different risk to having a capacity to meet your obligations as detailed previously. This is about ensuring that the customer is motivated to act quickly to deal with a problem that requires either financial or physical action when it occurs and their concern is that if the equity at risk is sourced via a second mortgage provider then:
There is less motivation for the sponsor to take the required action and they have no power to require the second mortgagee to act or input further equity.
In fact it is often the case that the second mortgagee is a passive syndicate of investors with limited ability to raise additional funds or make quick decisive decisions which leaves the bank having to deal with the problems associated with the projects but also having to be conscious of not acting in a way which is prejudicial to the interest of those investors which is a complication they do not relish.
In summary, banks tend to view all second mortgages as complicating transactions rather than adding value as their interests are not always aligned with those of the borrower and it is therefore a negotiating exercise that requires a complete understanding of the interests of both sides. At HoldenCAPITAL we are often required to obtain a senior banks consent to a second mortgagee position in order to get the best outcome for our client. We do this by clearly demonstrating the positives that the structure brings to the transaction and how the risks will be dealt with.
 
This article was written by Dan Holden of HoldenCAPITAL, who are a bespoke construction finance firm, they arrange construction finance and invest in projects through their equity fund, Queen Street INVEST. To discuss your project finance requirement please call (07) 3171 4200 or visit HoldenCAPITAL <a href="https://www.holdencapital.com.au" target="_blank">here</a>.
 
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firstname-zEygzUaHDN

Why the bank won't let you have a second mortgage

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GUEST OBSERVATION
A banknote has been sitting in my wallet for six months now. As time ticks on, it burns an ever greater hole in my pocket.
At first I felt uneasy spending it, following COVID-19 warnings to pay more attention to hand hygiene and the surfaces we all touch on a daily basis.
Now I have less and less opportunity to do so. While the World Health Organisation has <a href="https://www.marketwatch.com/story/who-we-did-not-say-that-cash-was-transmitting-coronavirus-2020-03-06">never advised</a> against using cash, <a href="https://www.propertyobserver.com.au/https://www.abc.net.au/news/2020-03-20/will-coronavirus-kill-off-cash-in-australia/12065860">more and more businesses</a> are displaying signs that read “We Only Accept Contactless Payment” next to their registers.
A recent <a href="https://newsroom.mastercard.com/asia-pacific/press-releases/mastercard-study-shows-consumers-moving-to-contactless-payments-for-everyday-purchases-as-they-seek-cleaner-touch-free-options/">global poll</a> conducted by MasterCard – a company with reason to favour card-based payments – found 82% of its users see contactless payments as cleaner than cash.
Online shopping is booming too. Amazon’s value alone has <a href="https://www.forbes.com/sites/sergeiklebnikov/2020/07/23/5-big-numbers-that-show-amazons-explosive-growth-during-the-coronavirus-pandemic/#5e58ab4a4137">risen by 570 billion US dollars</a> this year.
But while electronic payment may reduce our exposure to germs, it also shows banks, vendors and payment platforms what we do with our money. Social media is awash with <a href="https://www.propertyobserver.com.au/https://twitter.com/LeProfMoriarty/status/1301043738475720704">posts</a> condemning the forced use of contactless payment for fear of overseers eyeballing spending. Some people are even <a href="https://www.facebook.com/groups/732178480871805/">boycotting stores</a> that won’t accept cash.
The growth of digital transactions exposes yet another aspect of our personal life to, what the social psychologist Shoshana Zuboff has called, “<a href="https://www.theguardian.com/technology/2019/jan/20/shoshana-zuboff-age-of-surveillance-capitalism-google-facebook">surveillance capitalism</a>”. Financial data is now a valuable raw material that can be bought, sold and refined in the name of profit.
The decline of cash
When the pandemic began, cash had already been on the decline for years. In Australia, <a href="https://www.theguardian.com/business/2020/jun/24/virtually-no-demand-for-coins-in-covid-19-era-as-australias-shift-from-cash-to-digital-hastens">demand for coins</a> fell by more than 50% between 2013 and 2019.
For many people, increasing digitisation is synonymous with progress. It can be seen as a way of leaving the cumbersome, historical artefacts of coins and banknotes behind.
COVID-19 has accelerated this move away from cash. Wariness of <a href="https://www.insider.com/does-money-carry-germs">microbe-ridden banknotes</a> has seen contactless payment become a spontaneous public health standard.
Because cash is a social material, it moves between us, connecting us both financially and physically. The US Federal Reserve even decided to <a href="https://www.reuters.com/article/us-health-coronavirus-fed-dollars/fed-quarantines-us-dollars-repatriated-from-asia-on-coronavirus-caution-idUSKBN20T1YT">quarantine dollars</a> returning from Asia earlier this year in an attempt to stop the coronavirus crossing its borders.
Dropping digital breadcrumbs
One perk of paper money is that it does not leave paper trails. Digital money, however, leaves traces in the databases of banks, vendors and platform owners, while governments look keenly over their shoulders.
Financial journalist Brett Scott calls this a “<a href="https://networkcultures.org/wp-content/uploads/2018/01/14-brettscott.pdf">prison of watchable payments</a>”.
Tax officials love digital transactions because they make it easier to monitor the nation’s economy. Banks and payment platforms are pleased as well: not only do they collect fees and gain the ability to allow or obstruct transactions, they can also profit from the troves of personal data piling up on their servers.
Internally, banks use this data to offer you <a href="https://www.abc.net.au/life/banks-keep-lots-of-information-about-you-this-is-how-it-is-used/10912378#:%7E:text=What%20do%20banks%20use%20the%20personal%20data%20for%3F&amp;text=The%20first%20type%20is%20personalised,whether%20to%20lend%20us%20money.">other bespoke services</a> such as loans and insurance. But information is also aggregated to better understand wider economic trends, and then <a href="https://thenewdaily.com.au/finance/finance-news/2018/04/06/big-banks-sell-data-customer-spending-habits/">sold on to third parties</a>.
At the moment, these data metrics are anonymised but that doesn’t guard against retailers using <a href="https://thenewdaily.com.au/finance/finance-news/2018/04/06/big-banks-sell-data-customer-spending-habits/">de-anonymising techniques</a> to attach transactions back to your identity.
<a href="https://www.fastcompany.com/90310803/here-are-the-data-brokers-quietly-buying-and-selling-your-personal-information">Data brokers</a> exist for this very reason: building digital profiles and creating a marketplace for them. This allows retailers to target you with tailored advertisements based on your spending. The devices at everyone’s fingertips become a feedback loop of information in which companies analyse what people have bought and then urge them to buy more.
Can surveillance work on your behalf?
Having records of every transaction can also be useful for individuals. Companies such as <a href="https://www.revolut.com/en-AU">Revolut</a> and <a href="https://monzo.com">Monzo</a> offer “spending analytics” services to help customers manage their money by tracking where it goes each month.
But information about a user’s own behaviour never truly belongs to them. And, as the digital economist Nick Srnicek explains, “<a href="https://www.google.com.au/books/edition/Platform_Capitalism/2HdNDwAAQBAJ?hl=en&amp;gbpv=0#spf=1599549352476">suppression of privacy is at the heart of the business model</a>”.
Digital payment with (some) privacy
While filling virtual baskets or paying by tapping a card does open up transactions for inspection, there are still ways you can protect your health and your data at the same time.
“Virtual cards” like those provided by <a href="https://privacy.com/">privacy.com</a> are one useful tool. These services let users create multiple card numbers for different online purchases that conceal consumption patterns from banks and credit card details from merchants.
Cryptocurrencies might also find a new limelight in the pandemic. Hailed as cash for the internet, the inbuilt privacy mechanisms of Bitcoin, Zcash and Monero could work to mask transactions.
However, finding companies that accept them is challenging, and their <a href="https://www.google.com.au/books/edition/Money_Code_Space/QZj5DwAAQBAJ?hl=en&amp;gbpv=0#spf=1599549442513">privacy capabilities are often overstated</a> for everyday users. This is particularly true when using exchanges and third-party wallet software such as <a href="https://www.coinbase.com/">Coinbase</a>.
In brick-and-mortar stores, staying under the radar can be more difficult. <a href="https://auspost.com.au/money-insurance/buy-gift-cards/auspost-gift-card">Prepaid cards</a> are one option – but you’ll need to buy the card itself with cash if you want to keep your anonymity fully intact. And that takes us back to square one.<img src="https://counter.theconversation.com/content/145179/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important;">
<a href="https://theconversation.com/profiles/jack-parkin-1147810">Jack Parkin</a>, Digital Economist, <a href="https://theconversation.com/institutions/western-sydney-university-1092">Western Sydney University</a>
This article is republished from <a href="https://theconversation.com">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/cashless-payment-is-booming-thanks-to-coronavirus-so-is-financial-surveillance-145179">original article</a>.
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j.ballantyne1990-6AQqhLzZaK

Cashless payment is booming and so is financial surveillance

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The personal insolvency regulator, the Australian Financial Security Authority (AFSA), has identified and proven over $4 million of fraud, according to a new report released today.  
The Personal Insolvency Compliance Report, available now on the AFSA website, outlines AFSA’s compliance, regulatory and enforcement activities across the 2018-19 financial year.  
Hamish McCormick, Chief Executive of AFSA and Inspector-General in Bankruptcy, said the annual Personal Insolvency Compliance Report provides insight into the regulation of Australia’s personal insolvency system.
“AFSA is working to be both a firm and a fair regulator,” McCormick said.
“We undertake regulatory and compliance work to ensure that the personal insolvency system is equitable, and that all participants are meeting their obligations.
“Overall, we aim to provide the community with a personal insolvency system that they can have confidence in.”
McCormick highlighted some of the report’s key findings – including complaints against registered trustees and criminal prosecutions.
“In 2018-19, we received nearly 2,000 referrals of alleged misconduct,” McCormick said.
“We analysed each referral and found that 744 warranted further investigation. We referred 115 of these matters to the Commonwealth Director of Public Prosecutions.
“In total, 96 individuals were prosecuted for offences under the Bankruptcy Act. Our prosecutions attracted wide-ranging penalties, from fines to imprisonment.
“Pleasingly the number of prosecutions decreased in 2018-19, down from 137 in the previous year. The overall value of proven fraud also dropped, down from $5.5 million in 2017-18 to $4.6 million.”
Complaints about registered trustees, and the Commonwealth Government’s Official Trustee, both increased in 2018-19.
“In 2018-19 we received 296 complaints about practitioners, up from 257 the year prior. Similarly, complaints about the Official Trustee also rose – we received 48 compared to 10 in 2017-18.
“However, only nine complaints about registered trustees were found to be justified. And only one complaint about the Official Trustee was justified.”
The report noted that the conduct of untrustworthy bankruptcy advisers remains a potential threat to community confidence in the personal insolvency system.
In 2018-19, AFSA made a concerted effort to disrupt the activities of untrustworthy advisers, who provide dodgy advice to people at a time when they are in financial difficulty and vulnerable.
“In 2018-19, we worked closely with registered trustees and industry bodies to identify and disrupt untrustworthy advisers,” McCormick said.
“During the year we finalised three prosecutions involving untrustworthy advisers, and one more is still in progress.
“We will continue to target untrustworthy advisers in an effort to protect the integrity of the personal insolvency system. And where appropriate, we will refer matters to the Commonwealth Director of Public Prosecutions for action.”
The full report is available now on the <a href="https://protect-au.mimecast.com/s/K-fmCvl1lzI0l6WRhQWS8P?domain=news.afsa.gov.au" target="_blank">AFSA website</a>.
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Bankruptcy fraud on AFSA agenda with more than $4 million of frauds identified 

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Following an ASIC investigation, the Supreme Court of Queensland has made orders restraining Advanced Wealth Financial Services Pty Ltd (Advanced Wealth) and Richard Gardner from carrying on a financial services business.
Mr Gardner and Advanced Wealth had advised clients to set up self-managed superannuation funds (SMSFs) to facilitate the purchase of investment properties in relation to which Mr Gardner received substantial commissions. 
On 14 December 2018, ASIC commenced proceedings in the Supreme Court of Queensland against Advanced Wealth and Mr Gardner.
On 12 February 2019, the court ordered that Mr Gardner and Advanced Wealth pay ASIC’s costs of the application, fixed at $10,000.
The court also made the following declarations:
<ul>
<li>Between 29 April 2016 and 9 November 2018, both Advanced Wealth and Mr Gardner contravened section 911A of the Corporations Act 2001 (Corporations Act) by providing financial advice to clients to set up SMSFs to facilitate the purchase of investment properties in Australia without holding an AFSL;</li>
<li>Mr Gardner, as the sole director and responsible decision-maker for Advanced Wealth, was knowingly concerned in Advanced Wealth’s contravention of section 911A of the Corporations Act between 29 April 2016 and 9 November 2018.</li>
</ul>
Mr Gardner and Advanced Wealth are not currently licensed nor authorised to provide financial services unless they hold, or are authorised by the holder of, an Australian financial services licence (AFSL).
 
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jrobinson-rf4aSBido9

Court restrains Advanced Wealth and Richard Gardner from carrying on an unlicensed financial services business

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11 percent of home borrowers will be seeking new lenders this year, according to a new research revealed by Finder.
Their survey of 2,010 revealed that 56 percent of Australians are "sick of paying too much for financial products and pledging to switch at least one this year."
Aussies are most likely to switch phone providers, with 3.5 million looking to ditch their telco this year.
Finder's survey revealed "parents are twice as likely (14%) to consider switching a home loan than those without kids (7%)."
"Australians are least likely to shop around for super funds. Just 7% admit they will look for a better deal in 2019."
"Health insurance (17%), car insurance (16%), energy plans (16%) and broadband internet (14%) round out the top five switches that Aussies will be pursuing in 2019," according to the researchers.
Angus Kidman, editor-in-chief at Finder, says “Cost-cutting is the main reason householders will jump ship, and it can result in huge savings.
Generation Y (those aged 24-38) are much more inclined to switch, with 70% keen to find a better deal in 2019, compared to just 41% of Baby Boomers (those aged 59 and above).
Kidman said “More Australians are shopping around than ever before and they’re looking for the best deals."
<table><tbody>
<tr><th colspan="2">
Service                                                       
</th></tr>
<tr>
<td>
Mobile plan
</td>
<td>
18%
</td>
</tr>
<tr>
<td>
Health insurance
</td>
<td>
17%
</td>
</tr>
<tr>
<td>
Car insurance
</td>
<td>
16%
</td>
</tr>
<tr>
<td>
Energy provider
</td>
<td>
16%
</td>
</tr>
<tr>
<td>
Broadband plan
</td>
<td>
14%
</td>
</tr>
<tr>
<td>
Credit card
</td>
<td>
12%
</td>
</tr>
<tr>
<td>
Home loan
</td>
<td>
11%
</td>
</tr>
<tr>
<td>
Super fund
</td>
<td>
7%
</td>
</tr>
</tbody></table>
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Just 11 percent of Australians are set to refinance their home loans in 2019: Finder

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ASIC has banned Mark Damion Kawecki of Frankston, Victoria from providing financial services for seven years.
The banning follows an ASIC investigation into Mr Kawecki’s conduct when applying for shares under the initial public offerings (IPOs) of companies that subsequently listed on ASX between 2015 to 2017. A company must meet the 'minimum spread requirement' (a minimum number of unrelated shareholders in the company) under the ASX Listing Rules before its shares can be quoted and traded on ASX.
The ASIC investigation found that in relation to at least three IPOs, Mr Kawecki:
<ul>
<li>provided false information regarding the identity of the beneficial holders of shares that he applied for in the name of entities he owned and controlled;</li>
<li>submitted share applications in which he deliberately inserted false addresses for applicants;</li>
<li>knew that the false information and addresses he supplied would be provided to ASX;</li>
<li>did so to ensure his share applications would count toward meeting the minimum shareholder requirement for the companies to be listed; and</li>
<li>received a fee per application that he provided.</li>
</ul>
Following a hearing, the ASIC delegate found that Mr Kawecki had failed to comply with a financial services law by knowingly engaging in conduct that was likely to mislead, in contravention of s1041H(1) of the Corporations Act.
ASIC Commissioner Cathie Armour said, 'Attempts to achieve the minimum spread requirement through artificial means is inconsistent with the fair and orderly operation of the market. ASIC will take action to ban people from providing financial services if they engage in conduct that undermines the integrity of our markets.'
Mr Kawecki has a right to apply to the Administrative Appeals Tribunal for review of ASIC’s banning order.
The ASIC investigation into Mr Kawecki and related conduct concerning the provision of spread through artificial means is ongoing.
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ASIC bans Mark Kawecki for seven years for misleading IPO share applications

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The Australian Securities and Investments Commission (ASIC) has suspended the Australian financial services (AFS) licence of Vesta Living Communities Ltd after concluding that it had not maintained adequate compliance measures to meet its licence obligations.
ASIC found Vesta had not met the organisational competence and financial resource requirements of its licence.
Specific findings included that Vesta failed to replace the key person under the licence following a resignation and to lodge financial reports on time.
Vesta’s AFS licence has been suspended from 28 May 2018 until 25 November 2018, at which point ASIC will determine whether to cancel the licence.
This decision will be based on whether Vesta is able to demonstrate that it is able to meet all compliance and reporting obligations.
The suspension of Vesta' AFS licence is part of ASIC's ongoing efforts to improve standards across the financial services industry.
Vesta has the right to appeal to the Administrative Appeals Tribunal for a review of ASIC's decision.
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ASIC suspends AFS licence of Vesta Living Communities

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Financial services provider The Trust Co is against debenture company Angas ­Securities’ move to draw out repayments to investors and has called for receivers to oversee attempts to return the $135 million owed.
Angas will ask investors at a meeting in Adelaide to wait two years for returning their money, but Trust Co, owned by wealth manager Perpetual, has told investors it expected losses.
It may call on the Federal Court for a receiver to be called in depending on support for Angas, The Australian reported.
Trust Co wrote to its more than 2,000 investors that the corporate regulator and Trust had “carefully considered” the Angas plan and raised concerns about the adequacy of the document, which had not been “fully addressed”.
The trustee said there was a risk that debenture holders may not receive any “significant” payments from Angas until the end of June 2019. It said investors should brace for losses, writing that “Angas will not return a ­surplus and will in fact be unable to pay 100c in the dollar”.
Angas has paid back $15 million against the $145 million promised this time last year. The trustee said valuations relied upon by Angas were out of date, “in some cases by many years”.
Trust Co raised concerns about excessive spending, saying Angas had spent $16.2 million running its business in the last two years and had forecast spending $12.1 million over the next two years.
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jonathanchancellor-7SQnKwU6yx

Trust Co seeks receivers to oversee Angas Securities’ repayment schedule 

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<img src="https://counter.theconversation.edu.au/content/66833/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1">
GUEST OBSERVER
Life insurance has stood out as an industry without a code of practice when others such as general insurers have one.
The latest attempt by the Financial Services Council to remedy this may be a last chance for life insurers to reform, before the government forces them to.
The code from the Financial Services Council focuses on the relationship between the insurer and the customer and aims at high standards of consumer service; professional behaviour and industry consistency. It should complement the legislation announced in 2015 to deal the problems of excessive up front premiums, remuneration practices and commissions which were incentives for insurers to churn customers through policies. 
The code is also a result of the Trowbridge Report on retail life insurancewhich gave the life insurance industry a final opportunity to shape its future through a co-regulatory approach, rather than being reformed by the government alone. 
Hopefully this latest attempt at reform does not go the same way as the earlier 1995 code of practice for the industry, which lapsed in 2001. This covered similar territory to the Financial Services Council code, but made little difference to the way the industry behaved. A positive sign is this new code was developed in consultation with industry, while the last one wasn’t.
<h2>What’s in the code?</h2>
This latest code will again try to address problems with selling practices and the quality of advice, high lapse rates, increases in premiums and their affordability as individuals age, and the redesign and repricing of products. The CommInsure scandal revealed further problems with outdated definitions and problems with making claims. 
ASIC can approve these codes of practice for industry but rarely does so. This latest code is yet to be approved as well. 
Some sectors have agreed to codes to forestall unwanted legislative change. Other codes establish higher standards of behaviour than required by law. 
Codes are legally binding between an enterprise and a customer. This is because when an enterprise agrees to abide by a code it forms a kind of contract on the basis of this promise. 
The very first part of the latest code of practice states that the code is binding and commits the entity to the standards in the code. The framework of the code looks at types of business rather than types of product.
One big omission in the code, is that it does not cover superannuation fund trustees or financial advisers, unless they explicitly adopt the code. This means it doesn’t cover a group policy where it is the employer or the superannuation fund trustee who has taken out the policy. As a result many Australians with life insurance within their super funds do not benefit at all from the code. 
It does however apply to life products such as death, total and permanent disability, critical illness, disability, funeral, income protection, business expense and consumer credit insurance. But it does not cover products issued by a general insurer or a health insurer. This could create some confusion, for example it means that consumer credit insurance is covered by the code if provided by a life insurer, but not if provided by a general insurer. 
Compliance with the code will be monitored by a Life Code Compliance committee. This is similar to the banking codes. The Financial Services Council and the insurers both have obligations to make consumers aware of the code.
Consumers can make a complaint using the code to the insurer, the Financial Ombudsman Service or Superannuation Complaints Tribunal. But if a complainant goes to a court, tribunal or other external dispute resolution body, the code no longer applies. 
This code has an interesting take on the issue of designing life insurance products, as discussed in the 2014 Financial Systems Inquiry. It clearly states that when new policies are designed, “we will define suitable customers for the product”. This may stop the sale of products to those who don’t need them. 
This is good but it still falls short of an obligation to sell a product that is suitable for the particular person, rather than a product that is generic for a class of targeted people. For example tailoring a policy to suit a person’s particular set of circumstances. 
It’s a shame that the code has to set out that there will be rules to prevent sales to someone who is, “unlikely ever to be eligible to claim the benefits under a policy”. This really should be a part of the system already.
The obligation to review and update medical definitions is a good sign. But this applies only to policies that are currently being sold and won’t help those who are tied to policies with older definitions, that are no longer being sold.
The code also doesn’t have an obligation for insurers to disclose the exclusions in the policy, in plain language, to a customer before they sign a contract. This is something that really should be taken up by the industry. 
Funeral insurance is the only life insurance product that requires a pre contract key fact sheet for offers. This type of disclosure shortcut is mandatory for home building and contents general insurance. Although there are difficulties inherent in simplification for key fact sheets this should be reconsidered for other life insurance products.
There are provisions for pre-sale disclosure for consumer credit insurance. Insurers are required to offer an alternative form of payment, when there is an offer of an initial loan to pay for insurance. In addition to this, insurers have an obligation to disclose the cost of loan repayments without and with the premiums and the interest payable on them. It may prevent some of the practices revealed in the reports on the problems of add-on insurance.
The code is a step towards a better relationship between the industry and consumers, particularly through the provisions to assist the vulnerable and helping customers make claims. It is not perfect. 
The industry should continue to listen and take on board the virtues of the code. It can easily be changed to guide even better standards of conduct and meet newly identified problems.
Gail Pearson is professor, Business School, University of Sydney and author for The Conversation. She can be contacted <a href="https://theconversation.com/profiles/gail-pearson-670" target="_blank">here</a>.
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jchancellor-FAypfDUnLy

New life insurance code riddled with loopholes

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Yellow Brick Road is poised to appoint former the Westpac Banking Corp executive Adam Youkhana as general manager of its wealth unit.
The Australian Financial Review's Street Talk column said Youkhana, former head of Westpac Private Bank's financial planning arm will join the Mark Bouris-led diversified financial services group next week.
He will replace Matt Lawler who resigned in July.
Youkhana joined Westpac in 2010 after a stint at National Australia Bank. 
The appointment comes after a sweeping restructure at YBR which included a shift to a franchise model.
Yellow Brick Road's annual loss rose to $9.5 million from $2.6 million despite annual revenue increasing 31 per cent.
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