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New brokers ‘locked out’ under EDR confusion

by Reporter13 minute read
Confused broker, agent, confusion

EXCLUSIVE: Concerns have been raised that new-to-industry brokers are being left in limbo and unable to write business as confusion reigns over EDR membership certifications.

It is a requirement from lenders and aggregators that any broker be a member of an ASIC-approved external dispute resolution (EDR) body before they can start writing loans or becoming an authorised credit representative (ACR) under an aggregator.

However, members of the industry, including aggregator heads, have voiced frustration and disappointment that some new brokers could be prevented from writing business due to changes in the EDR schemes.

From 1 November 2018, the Australian Financial Complaints Authority (AFCA) will amalgamate three external dispute resolution (EDR) schemes: the Financial Ombudsman Service (FOS), the Superannuation Complaints Tribunal and the Credit and Investments Ombudsman.


Moves are already underway to transition the ombudsman services into AFCA.

AFCA is currently handling all new membership applications for FOS memberships and has said that ACRs who are currently CIO members will need to apply for membership with AFCA by 31 August 2018.

“These ACRs who have successfully applied for AFCA membership will be accepted as an official AFCA member on 1 September 2018,” a spokesperson told The Adviser.

“They will receive their membership certificates from 3 September 2018.”

AFCA said that this was part of the “planned and pre-arranged process”.

However, the CIO has confirmed that it is no longer accepting any new members, as it is in the process of transitioning to AFCA.

As such, it is believed that new brokers wishing to start writing loans will be prevented from doing so until 3 September, which is the date from which they will be issued with their AFCA membership certification.

However, it should be noted that AFCA has not yet confirmed whether new members (not transferring from an existing EDR) will receive their certificates earlier than 3 September.

“AFCA is restricting brokers’ trade”, says aggregator head

Speaking to The Adviser about the situation, the CEO of aggregator Outsource Financial, Tanya Sale, said that this could have a “major impact” on the industry — and potentially “lock out” hundreds of brokers should they be prevented from writing business until September.

According to Ms Sale, Outsource Financial brings on 30 new members a month, but that it cannot bring on any new brokers under its ACR until it has proof of EDR certification.

She said that new brokers looking to become credit reps under Outsource that have applied for AFCA membership have been faced with this issue for at least two weeks.

“New brokers have put in all that time to get their qualifications and all the components that we require as an industry, so most likely have been preparing to become a broker for a few months already, and now they are going to just sit there twiddling their thumbs for the next few weeks. 

“It would have a major impact on the broking industry because then you have a very high number of people who are missing out.”

If extrapolated out across the 14 major aggregator businesses, this could mean that more than 200 new brokers would not be able to write any business until September.

Ms Sale commented: “This is really poor. AFCA is restricting brokers’ trade that are coming into this industry because they haven’t sorted themselves out prior. This means that it will be two weeks, or even three weeks for some people, before they are getting their certificate and we can make them representatives under our licence.

“We cannot appoint a new member without that certificate and the banks won’t accredit a broker because we wouldn’t have fulfilled all the compliance components if that is missing.”

Ms Sale continued: “What is disappointing for us as an industry is that this [merger] has been on the cards for a long time.

“It is disappointing that it hasn’t been thought of properly, so now we have new members throughout the whole industry that can’t write a loan, they can’t look after their clients because they just don’t have that EDR certificate.”

She concluded: “We are encouraging people to join our industry and this is not a good experience for a new broker to start with; it makes us look pretty disorganised and unprofessional.”

Ms Sale has called on AFCA to employ more people on a temporary basis to get these memberships out to new brokers as soon as possible.

The aggregator CEO said that existing brokers would not be affected by this change, as they would be already authorised credit representatives.

Membership fee debacle

This is the second frustration felt by the industry regarding the transition to the new complaints authority, after several members of the finance and mortgage industry said that the transition would result in some EDR members being “double-charged”, which could cost the industry millions of dollars.

A letter sent out from the CIO to financial service providers (FSPs) recently highlighted that CIO members must have a membership that is valid up to and inclusive of 31 August. 

For members whose membership lapses before this date, they will be obliged to pay a full annual membership on top of their new AFCA membership fee, despite the fact that AFCA will begin operating the CIO EDR scheme on 1 September. 

Jon Denovan, special counsel at law firm Dentons and a former CIO director, warned that some members of the CIO would therefore be charged for two separate EDR schemes despite one becoming defunct later this year. 

Mr Denovan said: “This means that they are potentially double-charging people because a person whose renewal date happens to be 30 August 2018 will pay one year’s levy to the CIO and then at exactly the same time pay another year’s levy [to AFCA]. 

“For some aggregators that have a lot of credit representatives, that is hundreds of thousands of dollars that they will have to find, which they haven’t budgeted for and coming at a time when the industry is under stress.” 

Mr Denovan said that, collectively, this could result in the mortgage industry paying millions of dollars.

“The CIO have worked hard to get a better deal for the CIO members, but it is a terrible slap in the face for the CIO, which has done a tremendous job for the smaller financial institutions and for brokers.  

“It’s a slap in face to not only lose the expertise that the CIO has, but also to be potentially be double-levied.”

[Related: FBAA speaks out in support of single EDR scheme]

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