Lenders may need to vary their licence to sell at POS

From

Jaime Lumsden Kelly

Financiers who distribute through retailers may need to vary their licence in preparation for the end of the point-of-sale (POS) exemption.

The exemption was flagged to go by the Royal Commission. The credit representative model is the most obvious one to replace it. This will place financiers in a similar position to those who distribute insurance through the same or similar networks—but there’s a catch.

Authorisations work differently on AFS and credit licences

Insurers with AFS licences are able to appoint representatives without needing to vary their licence. However, authorisations work differently on credit licences. In most cases, financiers won’t be able to appoint credit representatives without varying their credit licence.

On both AFS and credit licences, there are two key types of authorisations relating to the transaction (ignoring the question of advice). For AFS licences, these authorisations are broadly arranged as:

  • Issuer, and anyone acting on behalf of the issuer; and
  • Agents of the client.

This is intuitive and works. It means that an insurer’s agent or anyone who performs part of the insurer’s tasks needs the same authorisation as the insurer. This makes sense because the insurer is delegating part of its activities.

For credit licences the authorisations are arranged as follows:

  • Credit providers and lessors; and
  • Everyone else – including intermediaries of all kinds, whether they act for the financier or the borrower.

This is not based on practical functions like the AFS licence authorisations. Credit authorisations are based on whether you’re a lender or lessor or not. So if you’re not a lender you need a different authorisation even if you’re acting on behalf of the lender.

The practical implications of this are that credit providers need one authorisation to run their lending business, and another if they want to appoint agents or delegate certain functions. So if a credit provider wants a credit representative to act on their behalf they need another authorisation.

While some credit providers have both authorisations, many financiers will only have a lending authorisation. This means anyone who doesn’t currently appoint credit representatives or operate their own intermediaries or credit assistance providers, will not be able to appoint credit representatives. Examples include Flexirent, Flexicards, Latitude Finance and ZipMoney.

Obtaining new authorisations may not be easy

Many credit providers who want to appoint their retailers as credit representatives will need to vary their licence to obtain the authorisation they need. But lenders may find it challenging to secure this authorisation. This is because lenders will need to nominate a Responsible Manager (RM) with expertise in acting as an intermediary to support the new authorisation.

Most existing RMs will not have this expertise unless they’ve worked for a broker or other intermediary before. This requirement is ridiculous because an RM who is competent in overseeing lending activities should be equally competent to oversee those lending activities when delegated to a credit representative. However, it remains to be seen whether ASIC will accept an RM’s experience as transferable because there’s no clear guidance on this point.

Historically, ASIC has been willing to accept an RM’s experience as transferable for similar financial services. For example, it has accepted general insurance competence demonstrated via reinsurance experience or life insurance experience demonstrated via general insurance experience in personal accident and illness. But in recent years ASIC has been less flexible with its competency requirements.

It can also take between 4 and 12 months (in some rare cases) to vary a credit licence. So if you’re a credit provider who is considering appointing your POS retailers as credit representatives, you should consider varying your credit licence sooner rather than later.

If you need help assessing your RM’s competence, varying your credit licence, or determining how to manage your arrangements when the POS exemption ends, please contact us.

By Jaime Lumsden Kelly

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