ASIC’s move unfriendly to societies

WHILE friendly societies have been given a break on some of their disclosure requirements, they are still crying foul over being put under the same Act as insurance giants such as AMP.

In July 1999 the societies came under the joint regulation of the Australian Securities and Invest-ments Commission and the Aust-ralian Prudential Regulation Auth-ority.

On December 31 they were made corporations.

The ASIC handles the societies’ disclosure requirements and the APRA handles the prudential side.

From the prudential side, friendly societies have come under the Life Act, the same Act that regulates life insurance companies.

The friendly societies believe the regulation regime they are under is too harsh.

Those regulatory requirements have started to take their toll, with the WA branch of one friendly society planning to close its financial arm and merge its funds with its Victorian branch in June.

Friendly societies have been operating in Australia for more than a century but their origins trace back to the days of the Roman Empire.

They are deposit-taking entities that also offer financial products – usually in the form of funeral benefits.

Funeral benefits are similar to a life insurance policy in that they can only be redeemed on the death of the policy holder.

The funds are either used to pay for the policy holder’s funeral or distributed to his family members.

Other services include sickness benefits and some financial invest-ment products.

In many cases fraternal lodges run alongside the financial arm.

People formed these fraternal societies to help each other out.

In days before it became a government function, these societies provided the only social security benefits available.

In many cases the societies provided the sort of services govern-ments provide now.

This is part of the reason for their decline in membership.

In latter days, the societies started going into financial services.

Prior to 1999, these societies were regulated by State-based Friendly Society Codes that had legislation dating back to the Friendly Societies Act of 1897.

The ASIC has eased friendly societies’ disclosure requirements in three areas.

Firstly, funeral directors dealing with an interest in a friendly society fund will not be required to have a securities dealer licence or be an authority holder, providing the director complies with State regu-lations governing pre-paid funeral contracts.

Pre-paid funeral products are one of the main offerings from friendly societies.

Secondly, the societies will not be required to make any new disclosures when a member makes additional contributions to one of their funds.

This is providing the society provides the correct level of disclosure that was required under the old State-based code.

“We have to meet the same sort of requirements as companies like AMP, yet we’re much smaller than they are.”

– Carol Richards

Thirdly, the ASIC has provided a prescribed form for the appoint-

ment of friendly society represent-atives.

However, these three points of disclosure relaxation will be reviewed in conjunction with the introduction of the Financial Sector Reform Act, which is expected to come in July.

There are 48 friendly societies on the APRA’s books.

Six of them are WA-based – The United Ancient Order of Druids, the Homeowners Friendly Society, the Australian Natives Association, the Manchester Unity Independent Order of Oddfellows in WA, the Ancient Order of Foresters in WA and the Independent Order of Oddfellows in WA.

The United Ancient Order of Druids expects to move its financial services arm to Victoria in June because of the cost to comply with the APRA requirements.

The order only offers a funeral benefit – similar to a life insurance policy that can only be paid out on the member’s death – but its 1,300 WA members does not justify the expense of maintaining a separate financial arm. Its lodges will remain open for fraternal meetings.

The Ancient Order of Foresters and the Independent Order of Oddfellows in WA face similar problems but will be keeping their financial arms in WA.

The Oddfellows are so called because they used to meet at odd times and in odd places. Their history dates back to the times of Julius Caesar.

IOOFWA secretary Carol Richards said friendly societies were completely different to life insurance companies but were being treated the same in the eyes of the law.

“We have to meet the same sort of requirements as companies like AMP yet we’re much smaller than they are,” Ms Richards said.

“In the century we’ve been operating, I don’t think any friendly society has ever shut its doors because it did the wrong thing financially.

“They’ve usually had to close because they’ve run out of members.”

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