AFS and Credit Licensees are now Required to Share Reference Checks and Onboarding Information when Adding Financial Advisers and Mortgage Brokers

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Financial Advisers and Mortgage Brokers will be required to undertake reference checks and share information relating to an individual seeking to be employed or authorised as a Financial Adviser or Mortgage Broker from 1 October 2021.

The reforms come in response to a recommendation in the Financial Services Royal Commission to improve reference checking in the financial advice and mortgage broking industries. ASIC considers these reforms to be an essential element of an Australian Financial Services and Credit licensee’s (“Licensees”) general obligations.

What are you Required to Do?

From 1 October 2021, Licensees will be required to check references and share information about prospective representatives seeking to be employed or authorised as:

  • a financial adviser who will provide personal advice to retail clients about relevant financial products as a representative of an AFS licensee; or
  • a mortgage broker who will provide credit assistance in relation to credit contracts secured by mortgages over residential property as a mortgage broker representative of an ACL holder.

The ASIC Protocol applies to:

  • a ‘recruiting licensee’ – a licensee that is considering employing or authorising a prospective representative as a financial adviser or mortgage broker; and
  • a ‘referee licensee’ – a prospective representative’s current and/or former Licensee in the last five (5) years from whom a reference is sought.

Licensees must take reasonable steps to obtain a reference from a referee licensee before employing a prospective representative. Taking reasonable steps to conduct a reference check includes:

  • seeking written consent from the prospective representative to request a reference; and
  • if the consent is obtained, requesting a reference from a referee licensee in accordance with the ASIC Protocol.

Licensees must take reasonable steps to obtain references from the Licensees listed below:

If a prospective representative:A reference must be sought from:
is currently employed or authorised by a Licenseethe current Licensee
has been employed or authorised by the current Licensee for less than 12 monthsthe current Licensee and the most recent former Licensee in the past five (5) years.
is not currently employedthe most recent former Licensee (if the prospective Licensee was with that Licensee for less than twelve (12) months, then the next most recent former Licensee) in the past five (5) years.
is a Licenseethat Licensee

There is no prohibition on obtaining additional references from former Licensees that employed or authorised the prospective representative beyond the previous five (5) years.

When to Obtain a Reference

ASIC doesn’t specify a timeframe in terms of when a reference should be obtained. This may be:

  • at the beginning of the recruitment process;
  • at the end of the recruitment process; or
  • at the time of an offer, i.e.: Licensees may make an offer of employment or authorisation conditional on satisfactory reference checking.

Consent

It is important to note that consent must be obtained from the prospective representative using the template consent form in Schedule 1 of the ASIC Protocol prior to requesting a reference. Licensees are required to ensure all reference checking activities are conducted in accordance with the Australian Privacy Principles. If consent has not been obtained or consent has ceased or been withdrawn, the Licensee cannot obtain a reference check about the prospective representative.

When to Provide a Reference

Licensees who receive a reference request, should ensure that the reference request:

  • includes a copy of the consent provided by the prospective representative; and
  • is in the appropriate format.

A response is required to be given to a reference request within ten (10) business days, unless the Licensee have agreed on a longer timeframe (up to a period of thirty (30) business days).

A  Licensee must ensure any reference provided:

  • is in writing;
  • is complete and accurate based on documented facts that have been verified;
  • includes objective and relevant information to the role of the prospective representative;
  • accurately addresses current circumstances and historical performance (up to five (5) years prior); and
  • avoids subjective information or opinions.

What Happens if I Don’t Comply?

Non-compliance with the obligations will see Licensees subjected to a civil penalty or administrative action by ASIC which may include suspending or cancelling the licence or imposing additional conditions on the licence.

Background Information

As part of the Financial Services Royal Commission, it was found that AFS licensees were not sufficiently communicating between themselves about the background of prospective employees and that there was a frequent failure to respond adequately to requests for references about their previous employees. As a result, the Royal Commission recommended that AFS licensees undertake procedures similar to the Australian Banking Association’s Reference Checking and Information Sharing protocol to ensure that consumers are not exposed to Financial Advisers with a history of poor conduct. It was recommended that Mortgage Brokers be subjected to the same obligations.

The ASIC Corporations and Credit (Reference Checking and Information Sharing Protocol) Instrument 2021/429 (“ASIC Protocol”) was registered on 19 July 2021 to give effect to these new obligations. The ASIC Protocol aims to promote better information sharing between Licensees about the performance history of Financial Advisers and Mortgage Brokers with a focus on compliance, conduct and risk management.

Further Reading

Please contact us if you require assistance with understanding and implementing your obligations or shop our website templates for assistance in updating your policies and procedural documentation with the new obligations.

About The Author

Alicia Pevely

Alicia Pevely

An integral member of the Sophie Grace team since 2012, Alicia has extensive experience in relation to financial services law, consumer credit law, regulatory matters and ASIC investigations. Working closely with her clients, Alicia has maintained a significant emphasis on AFS and credit licensing and liaising with ASIC. As General Manager, Alicia has oversight of all licence applications and provides advice and support in relation to more complex applications.