MEMBERS of the financial services industry are concerned about the effect of new cross-endorsement regulations on the sector when they are introduced as part of the Financial Services Reform Act.
Multi-agents are likely to be hardest hit by the regulations and experts are predicting the whole multi-agent business model will be transformed.
The new laws aim to regulate the financial services industry by requiring those dealing in, or advising on, financial products to become either an Australian Financial Services licence holder or an authorised representative of one.
The expectation is that most financial service providers will opt to become authorised representatives to avoid the onerous obligations of an AFS licence, however cross-endorsement regulations may prove this option limiting for multi-agents.
Under the Act, licence holders can be held jointly and separately liable for the conduct of their authorised representatives. As such, multi-agents will need the consent of each licence holder they distribute for in order to become an authorised representative of another.
Clayton Utz financial services director Karen Den-Toll said the FSR Act replaced existing legislation under which cross-endorsement was a much simpler matter.
“At the moment, under the Insurance Agents and Brokers Act, there is automatic cross endorsement. If an agent wants to write business for more than one insurer all they have to do is notify each,” Ms Den-Toll said.
“Under the Financial Services Reform Act, agents actually have to get consent to act for more than one insurer.
“This gives insurers the option to stop agents writing business for their competitors.”
Insurance Agents Association of Australia WA representative Ned Schepis said cross-endorsement could cause problems for many multi-agents.
“What happens when two companies merge and there are two authorised representatives for two different insurers and the insurers refuse to cross-endorse?” he said.
“It could leave multi-agents in no-man’s land.”
Mr Schepis said multi-agents had four options – get a licence, try to obtain cross-endorsement on a limited range of products, form an alliance with another group that gave access to several underwriters or leave the business.
However, Ms Den-Toll said while holding a licence meant multi-agents would be in control of their own destiny, there were many onerous obligations.
