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Car dealers fear effect of insurance rules

The Office of Fair Trading (OFT) is investigating whether new rules from the Financial Services Authority (FSA) breach European antitrust law by restricting the ability of car dealers to sell multiple marques.

The OFT has already contacted the FSA about its new rules on selling insurance, which it said were "in theory" anti-competitive. It expects to decide early next year whether enough car dealers are hit by the rules to pose a serious competition threat.

If the OFT decided to intervene it would be the second time it had asked the FSA to change its rules since the financial regulator was created in June 1998.

John Holmes, a principal case officer at the OFT, says: "We have raised with the FSA. If we find there is a restriction on competition it is a question of whether we consider it significant.

If we do we can go back to the FSA and ask them to look at their regulations and revise them." The FSA rules will regulate the sale of general insurance - including car insurance and many warranties - for the first time.

Peter Stevens, a partner at Manches, the law firm, said the OFT's concern applied to car dealers who chose the cheaper of two routes to meet the new rules. Dealers were more likely to want to be regulated as appointed representatives of manufacturers, rather than being regulated themselves directly.

"The FSA rules say the contract has got to reserve the right to impose exclusivity at a later date," says Stevens.

"Even if it is not exercised, no rival manufacturer is going to put his cars in the other half of the showroom and risk not being able to sell his insurance at a later date."

As a result, the rules would restrict the ability of car dealers to offer multiple brands in the same showroom, something manufacturers must allow under European competition law, known as the "block exemption", introduced last year.

Even if two manufacturers did appoint the same representative, the competitive brands would have to agree how to handle complaints - seen as unlikely.

The Retail Motor Industry Federation, which represents dealers, said it had written to to the FSA to warn that the rules could be anti-competitive, but found that "the FSA don't really understand where we're coming from."

The rules, which come in on January 14, have already been modified to prevent corporate employees who organise insurance for subsidiaries being regulated.

But they have been vocally attacked for being unnecessarily expensive by other groups who will be caught in the FSA's net for the first time, including car dealers and transport companies. Lawyers have warned that many other groups - including vets selling pet insurance - could be forced to pay to register with the FSA, with no clear benefit.

(Source: FT.com)

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