ASIC puts outsourcing under spotlight

The regulator imposed additional licence conditions on Award Mortgage Solutions in light of the investigation.

According to ASIC, the broker did not properly appoint, supervise and train its staff or credit representatives, particularly those based in a processing office in China, nor did it properly assess and verify loan applications.

ASIC claims this lead to the possibility of false documents being submitted to credit providers.

The regulator also claimed disclosure documents were not always given to clients.

An ASIC spokesperson told The Adviser this is a new area to which the regulator will be paying close attention in coming months.

“This has come up quite a bit in our recent surveillance work and it is too often a source of problems for licensees. ASIC is taking an increased interest in the area of overseas outsourcing to ensure licensees have procedures in place to identify and manage associated risks,” the spokesperson said.

According to ASIC, there are risks associated with outsourcing in general, but in particular when the outsourcing is to overseas entities.

“Outsourcing may affect the licensee's operational risk through reduced control over people, processes and systems used in outsourced activities,” the spokesperson said.

Partner at Gadens Lawyers Jon Denovan told The Adviser there is nothing that a broker cannot outsource – however, licensees remain liable for the acts of their outsourced suppliers.

“ASIC also expects licensees to have a system for monitoring the conduct of the outsourced service provider,” Mr Denovan said.

“The biggest risk is that a broker will be held liable for the conduct of the service provider, and if that conduct is bad enough, there may be penalties and compensation payable.

“The question of what outsourced services require a licence is complex, but providing credit assistance or acting as intermediary will require the outsourced supplier to hold a licence.”

In addition to credit assistance, Mr Denovan claimed privacy was an issue that needed to be addressed.

“There are additional privacy issues if the service provider is overseas – and those requirements will change and become stricter from 12 March 2014 when amendments to the Privacy Act commence.”

ASIC expects there to be “appropriate processes” in place to ensure brokers have taken due care in choosing a suitable service provider who has the necessarily skills and experience for the job.

“[We expect brokers] will monitor their ongoing performance and can deal effectively with any breaches of the outsourcing agreement or actions that lead, or might lead, to a breach of your licensee obligations,” ASIC said.