The Commonwealth Treasury

Regulation of discretionary mutual funds and direct offshore foreign insurers

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Key issues

18. Implementing the review recommendations for DOFIs requires the extension of the scope of the Insurance Act to capture a broader range of activities. DOFIs seeking to market insurance in Australia from comparable prudential regimes may then be exempted from the application of the Act.

19. However, regulating DOFIs raises a number of matters to address, including:

20. In relation to DMFs, implementing the review recommendations would allow DMFs to continue to operate only if they can do so without retaining any contingent risk. DMFs that cannot do so would no longer be permitted to write discretionary cover.

21. Outstanding matters to address before regulating DMFs include:

22. The focus of the HIH Royal Commission recommendation, the review of DMFs and DOFIs, and this discussion paper is the appropriate prudential and consumer protection regulatory framework for DMFs and DOFIs operating in the Australian market. No examination is conducted or recommendations made in relation to taxation of DMFs and DOFIs.

23. While there are some differences in taxation treatment between DMFs, DOFIs and authorised insurers, it is not appropriate for taxation matters to drive prudential policy.

24. Consistent with the recommendation of the HIH Royal Commissioner, the Treasurer has written to his counterparts in the States and Territories, urging the removal of all State taxes and levies on insurance contracts.

25. The removal of these taxes would allow the more efficient operation of the insurance market.