Distinguishing the AR network
The AR network is a different animal from other organisations and it's a puzzle why any broker should choose this route, says Grant Taylor
There has been a marked increase in the emergence of companies and organisations that purport to offer a safe harbour to intermediaries who do not wish, for whatever reason, to become directly authorised.
Indeed such has been the flurry of announcements that the FSA recently warned intermediaries considering becoming appointed representatives (AR) that they faced a period of uncertainty. This uncertainty exists on several levels, not least of which is that the appointed representative networks have themselves to become authorised to undertake this role.
The FSA is presently considering how this may be achieved. Interestingly, the FSA has always maintained that it will impose a higher duty upon these organisations than individually authorised firms, as it sees them presenting a 'greater threat' when viewed using a 'risk based' analysis.
Failure to achieve authorisation for an AR network raises the spectre for potential ARs of finding themselves in very stormy waters indeed. At the very least they will have to find another partner or face the possibility having to prepare their businesses for direct authorisation on a much tighter time scales, with the potential for higher costs associated with late application.
Lets be clear, AR networks will exist in order to generate a profit and not for any altruistic reasons. Should an AR network cease to exist in the future, for whatever reason, its ARs will no longer be able to trade.
The law of agency when applied to brokers has always been contentious and it will be interesting to see what opinions emerge on matters such as who owns the client, when a third element, is introduced in the equation?
Becoming an AR is not a means of circumventing the FSA regulations, as all companies still have to trade appropriately, regardless
of their status. There has been a great deal written about the complexity of the requirements for direct authorisation and on the face of it, the barrage of regulations does seem daunting. However, most properly constituted intermediary businesses should be capable of achieving direct authorisation without too much trouble. After all most of what the FSA is proposing is only good business practice.
If this is the case, one has to question why a business whose main activity is "insurance broking" should opt to take the AR route. Indeed, from a simple financial standpoint a directly authorised company has to be worth more than a business that trades as an AR. This leaves me wondering, why go down this route?
I also believe that a distinction should be drawn between those networks that do not intend to operate an AR network of which the Eastern Alliance is one and other organisations. From where I stand they are two quite different animals.
Eastern Alliance members have worked to formulate a common approach to regulation and have considered the impact of the FSA regulatory regime in so far as their individual business are concerned.
We believe that each business is unique and as such is not suitable for a 'one size fits all' approach. That is why we contend that our formula is the right one for our business for the future.
We continue to seek appropriate new members and will provide them with access to all aspects of best practice that Eastern Alliance has developed but they must be committed to becoming directly authorised.
Members of the Eastern Alliance have undoubtedly benefited as a result of the development and sharing of best practice business solutions to such issues and this and is just one reason why I believe that networks such as ours will continue to grow and attract new independently minded members in the future.