Stronger broker reference checks legislation passed

The amendment includes a move to close an unintended loophole in which aggregators, who are also Australian credit licensees, may not have been required to comply with the Reference Checking and Information Sharing Protocol under the National Consumer Credit Protection Act, in certain circumstances.

While reference checking came into effect on 1 October 2021 (following recommendations from the banking royal commission), reference checks for brokers moving between aggregators, or from a lender to an aggregator, could only be conducted under qualified privilege by outgoing and incoming licensees.

Given that aggregators often work closely with other Australian credit licensees under service agreements – and hold information about activities of other Australian credit licensees and their authorised credit representatives – the industry has long called for these laws to be extended to include these aggregators and help them provide and receive references when they are not the broker’s licensee.

As such, the legislation that passed this week ensures that these aggregators are subject to the same reference checks and information sharing as Australian credit licensees and Australian financial service licensees are.

It therefore allows aggregators who are not licensees to give and receive references for brokers moving to and from them - and to maintain and store information related to licensees.

The amendments aim to ensure there is consistent practice throughout the mortgage broking industry and that employment information will be available about financial advisers and mortgage brokers where appropriate.

The financial services regulator will now consult with industry and update its current reference checking framework.

‘Moving between aggregators will be easier, simpler and more efficient’

The Mortgage & Finance Association of Australia (MFAA) has welcomed the passing of the Treasury Laws Amendment (Modernising Business Communications and Other Measures) Bill 2023, with chief executive Anja Pannek stating: “We’ve been working with our members, Treasury and ASIC for more than two years on this piece of legislation which is aimed at continuing to mitigate the risk of misconduct, therefore adding to the already high levels of trust and confidence in the industry.

“This change strengthens the current reference checking process by ensuring that aggregators always form part of the process, regardless of if a broker has their own licence.”

The MFAA CEO added that the association expects the changes will “mean the comprehensive reference checking regime will replace the often fraught and unregulated practice of ‘letters of separation’ that has been in industry for too long.”

“For brokers, that would mean moving between aggregators will be easier, simpler and more efficient,” she said.

Noting that aggregators are required to undertake a range of compliance measures, she said: “As many mortgage and finance brokers hold their own license, it makes sense for the reference checking framework to extend to aggregators that provided compliance support to those licensees.

“While there will be a consultation process, we have already engaged extensively with our aggregator members, ASIC and other finance industry associations in preparation for this consultation and do not foresee any impediments to this process or the timely implementation of the updated reference checking framework.”

The CEO flagged that the MFAA has also recently established a cross-industry Accreditations Working Group with major lender and aggregator members with the core objective to ensure that “friction” is removed from the various accreditation processes within industry, including the movement of brokers across aggregators.

The reference-checking protocol change was 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).

[Related: ASIC releases reference checking protocol for mortgage brokers]