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    If you are planning to authorise new authorised representatives (ARs) to provide financial services under your Australian Financial Services Licence (AFSL), you need to consider a number of risks.

    A unique risk is if the ARs are credit representatives of an Australian Credit Licensee (AC Licensee) and the AC Licensee is independent from you and your business.
    A concern in this situation might be you could be involved in a dispute as a result of, and perhaps even liable for, the conduct of your AR in relation to the provision of consumer credit services.
    A number of recent Financial Ombudsman Service (FOS) decisions have found AFS Licensees to be liable for the conduct of ARs acting outside of their authority. While none of these decisions appear to specifically deal with the issue of providing credit services, the decisions illustrate that you may be found liable for the activities of your AR outside of the scope of the services you authorise them for.
    Below is a list of steps you can take to reduce or transfer risks associated with authorising ARs under your AFSL who are also credit representatives of a separate ACL.
    1.    Refuse to authorise ARs that provide credit services. Whilst this would allow you to avoid the specific risk, it would also limit your business opportunities. The commerciality of such a policy would therefore need to be weighed.

    2.    Train the ARs to ensure they understand:

    a.    the distinction between the financial services they are providing as ARs of your financial services business and the credit services they are providing as credit representatives;

    b.    when they are acting in their capacity as ARs of your financial services company; and

    c.    the importance of communicating this clearly to clients orally and in writing.

    3. Tailor your monitoring and supervision arrangements for these ARs to ensure that they are communicating clearly with their clients the capacity in which they are acting for your business and when they are not.

    4. Tailor specific disclosures for these ARs such as Financial Services Guides and Statements of Advice (SOAs), making it clear that these ARs only act on behalf of you with respect to financial services, and explicitly state that they are not acting as ARs with respect to credit activities.

    5.    Require ARs to segregate the provision of their services. For example, you could require ARs to restrict advice or suggestions in SOAs and ROAs to financial product advice only.

    6.    Ensure that your AR agreement:

    a.    Provides an indemnity to your business with respect to any damage it suffers due to any unauthorised conduct of the AR;

    b.    Allows for monitoring of the provision of credit services provided by the AR, and gives you the power to terminate the AR or to contact the AC Licensee if you are sufficiently concerned;

    c.    Includes a condition that if the AR enters into a credit representative agreement with an AC Licensee that the agreement must include a clause indemnifying you for conduct entered into by the AR as a credit representative.

    7.    Develop a relationship with the AC Licensee. If you HAVE these concerns, there is a good chance that the AC Licensee has similar concerns relating to their liability for the financial services activities that its credit representatives may be providing. From developing such a relationship you may also:

    a.    Get an idea of the quality of the AC Licensee’s monitoring and supervision of its credit representatives, which would help you determine the likelihood of the credit representative providing “risky” credit services. This might influence the extent to which other measures are necessary.

    b.    Be able to negotiate an agreement with the AC Licensee, to make it clear that each party will indemnify the other for any liability caused by the AR/credit representative providing services under the respective parties’ authorities.

    8.    Investigate the extent that the risk you face can be transferred; contact your PI insurer to check whether your insurance policy covers this type of conduct.

    9.    Acquire your own ACL. This would allow you to appoint credit representatives and directly manage the risks involved with these services. ASIC Information Sheet 134 provides more information about the obligations if you are both a credit licensee and an AFS licensee.
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