Aggregators key to reference-check protocol: MFAA

The draft exposure bill and explanatory memorandum on the Treasury Laws Amendment (Miscellaneous and Technical Amendments) Bill 2022 aim to help prevent those responsible for misconduct to continue their poor behaviour.

In its submission to Treasury, the MFAA welcomed the wording contained in the draft bill, stating it believed it met its intended policy objective.

However, a small loophole does exist, the MFAA flagged, which needs to be closed - but said work was “on track” to do so.

Speaking exclusively to The Adviser, MFAA head of policy and legal, Naveen Ahluwalia, explained that the body's role was to "positively shape and influence the industry, including to do everything we can to continue to increase the already high levels of trust and confidence in our industry".

“One of a number of areas of reform following from the [banking] royal commission was information sharing and reporting of misconduct," she said, suggesting that this was "intended to ensure that misconduct is detected early and then addressed quickly and transparently".

"The related reforms, which have been legislated and commenced on 1 October 2021, include the ASIC reference checking protocol. The intent of the protocol is to prevent those responsible for misconduct from simply moving between licensees and industries and continuing their poor behaviour," Ms Ahluwalia continued.

“The protocol is very much alive in industry with licensees exchanging information through references, with the protection of qualified privilege," she told The Adviser.

“Whilst the protocol is working well to mitigate the movement of those responsible for misconduct, the MFAA saw an opportunity to further strengthen the protocol by ensuring that aggregators always form part of the process.

“At present the reference checking legislation and protocol requires that a reference be provided only by the broker’s licensee.”

The crucial role of the gatekeeper

Whilst aggregators perform an important gatekeeper compliance function in the industry, many brokers have their own licence, Ms Ahluwalia flagged.

“That means that aggregators are excluded from the reference-checking process in a large number of instances,” Ms Ahluwalia explained.

"Even if the licensee was willing to share the reference with the aggregator, or request a reference from the aggregator, this would not be covered by qualified privilege and is unlikely to therefore be provided."

The MFAA had made simliar suggestions to the recent Australian Law Reform Commission’s (ALRC) review into financial services legislation.

In the latest letter to Treasury, the MFAA also flagged other areas that could be included in a revised protocol.

These include:

1. Amending forms allow those applying for a job to nominate a relevant contact point within the referee. Alternatively, the MFAA suggests a central repository of referee contacts from across the industry could be facilitated to capture parties within the mortgage broking industry (including aggregators, lenders and others captured by the regime), which could ultimately form part of the ASIC register.

2. If a broker leaving an 'outgoing' aggregator does not receive a reference/the compliance support from them, then the incoming aggregator/licensee must, in addition, obtain the reference from the broker licensee.

3. Extend reference checking obligations from five years to seven years to "align the timeframe for employment law record-keeping obligations".

4. Extend qualified privilege to entities operating through groups (for example, entities within aggregator groups) by providing space for associated companies within the Template Consent Form.

5. Enable fresh references to be submitted if a matter is identified after the original reference was given (which should be covered by qualified privilege).

Ms Ahluwalia concluded: "Over the course of a number of months, we have worked closely with both industry and Treasury, the result was the production of the draft Bill.

"When passed, this Bill will increase transparency and disclosure so as to better manage the movement of those responsible for misconduct.  In doing so, it will increase the already high levels of trust and confidence in our industry.”

[Related: ‘Leave broking alone’: Shadow Assistant Treasurer]