The financial services regulator has released its protocol and guidance documents to help credit licensees comply with their new reference checking obligations from 1 October.
The Australian Securities & Investments Commission (ASIC) has released its ASIC reference checking and information sharing protocol (ASIC Protocol) and associated guidance documents to help Australian financial services licensees (AFSL) and Australian credit licensees (ACL) comply with the new reference checking obligations, which commence on 1 October 2021.
As one of the recommendations of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, it was put forward that both financial services licensees and credit licensees should be bound by information sharing and reporting obligations.
The recommendation came after it was found that licensees were not doing enough to communicate between themselves about the background of prospective employees – with this lack of information-sharing potentially increasing the risk of “bad apples” staying within industry undetected (particularly where a person moves from one industry to the other, i.e. financial planning to broking).
The legislation – which was generally welcomed by industry heads – was introduced to parliament on 12 November 2020 (receiving Royal Assent on 17 December 2020) and a consultation on this protocol was released.
Following consultation, the finalised protocol has now been released.
It 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(s) in the last five years from whom a reference is sought.
ASIC will require licensees to take “reasonable steps” to obtain a reference from a referee licensee before they employ or authorise a prospective representative. These may include seeking written consent to obtain a reference and requesting one in line with the protocol.
An example of a template reference request for a mortgage broker can be found here.
“The ASIC Protocol sets out obligations for licensees to undertake a reference check and share information on an individual seeking to be employed or authorised as a financial adviser or mortgage broker.
“The reforms will promote better information sharing about the performance history of financial advisers and mortgage brokers – focusing on compliance, conduct and risk management,” ASIC has said.