---
created: 2026-03-12
source: Rivet
tags: [agent-archive, rivet]
---

# AFSL Kill Memo — Payment Protection Insurance Feature

**Decision Record**  
**Date:** February 6, 2026  
**Decision by:** Michael McLoughlin (Founder)  
**Status:** KILLED — Do not revive without reading this document first

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## What Was Proposed

RateRight would offer a **"Payment Protection Insurance"** product:
- Workers pay **$10/week** ($520/year)
- If a contractor doesn't pay for completed work, RateRight covers the worker
- Essentially an insurance product bundled into the platform

A separate **escrow feature** was also proposed:
- RateRight holds funds during the job
- Released to worker on job completion
- Operates like a trust account

**Both features were killed on February 6, 2026.**

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## Why It Was Killed

### 1. AFSL Requirement — The Showstopper

The payment protection model almost certainly constitutes **general insurance** under the Corporations Act 2001 because it:
- Provides financial risk protection against a specific event (non-payment)
- Involves pooling of premiums to pay claims
- Manages financial risk for consideration (premiums)

This triggers the requirement for an **Australian Financial Services Licence (AFSL)**.

**AFSL requirements include:**
- Professional indemnity insurance ($2M+ minimum)
- Financial resource requirements (significant capital reserves)
- Compliance officer appointment
- Annual audits and reporting
- ASIC oversight and fees
- **Estimated setup cost: $150,000–$300,000**
- **Timeline: 6–12 months for regulatory approval**

**For a pre-revenue startup with a $50 flat fee model, this is impossible.**

### 2. The Maths Don't Work

Research showed the $10/week pricing had **no actuarial basis**:
- 100 workers = $52,000 annual pool
- A **single** $50,000 non-payment claim wipes out the entire pool
- Construction has 2,636 company insolvencies per year (FY2024-25)
- Adverse selection: highest-risk workers sign up first
- Sustainable pricing would need $25–40/week — prohibitively expensive

### 3. Escrow = Trust Account Regulation

Holding client funds triggers:
- Trust account obligations under state laws
- Potential need for an Australian Credit Licence
- Significant accounting and audit requirements
- If RateRight becomes insolvent while holding escrow funds, massive legal liability

### 4. Existential Risk to Core Business

Pursuing either feature would have:
- Delayed launch by 6–12 months minimum
- Required $150K+ in regulatory compliance costs
- Diverted focus from the core matching product
- Created ongoing compliance burden (audits, reporting, ASIC oversight)
- Exposed RateRight to claims liability it cannot fund

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## What Replaced It

**Trust = Reputation Only**

The platform builds trust through:
1. **Ratings and reviews** — Workers rate contractors, contractors rate workers
2. **Card on file** — Contractors must have a valid payment card to post jobs (not charged by RateRight, just verified)
3. **Transparent history** — Both parties can see track records before engaging
4. **Platform reputation** — Bad actors get poor ratings and eventually suspended

**No money touches RateRight except the $50 connection fee.**

This is the correct model because:
- Zero regulatory burden
- Zero financial liability for non-payment disputes
- Clear marketplace positioning (not a financial services provider)
- Supports the sham contracting defence (RateRight doesn't control the financial relationship)

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## If Someone Wants to Revive This

Before anyone proposes bringing back payment protection or escrow:

1. **Read this memo in full**
2. **Budget $150K–$300K for AFSL application** (if insurance)
3. **Budget 6–12 months for regulatory approval**
4. **Engage an actuary** to model sustainable pricing
5. **Engage a financial services lawyer** (not just employment law)
6. **Consider partnering with a licensed insurer** instead of doing it in-house
7. **Assess whether the business has sufficient revenue** to absorb compliance costs

The only viable path to payment protection would be a **partnership with a licensed insurer** (e.g., offering third-party trade credit insurance through the platform as a referral, not as RateRight's own product). This would still need legal review but avoids RateRight needing its own AFSL.

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## Key Sources

- RateRight Payment Protection Research (Feb 2026) — `memory/plans/research/payment-protection-research.md`
- Corporations Act 2001 (Cth) — Financial services provisions
- ASIC Regulatory Guide 36 — Licensing: Financial product advice and dealing

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## Decision Authority

This decision was made by the founder. Reversing it requires:
- Founder approval
- Full regulatory impact assessment
- Financial feasibility analysis with actuarial input
- Legal opinion from financial services lawyer

**This feature is dead. The $50 flat fee model is the business. Keep it simple.**

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*Documented: February 7, 2026*  
*Author: Rivet (COO System)*  
*Decision maker: Michael McLoughlin*