The Australian Securities and Investments Commission (ASIC) has now released details of how the reference checking regime for financial advisers and mortgage brokers, which commences on October 1, 2021, will work.
How the scheme works
When does it apply?
When an Australian Credit Licence (ACL) or Australian Financial Services (AFS) licensee is considering employing or authorising:
- A representative as a mortgage broker (note that a business test applies and so the regime does not apply to all finance brokers); and/or
- Persons who will provide personal advice to retail clients about relevant financial products (which are financial products other than basic banking products, general insurance products, consumer credit insurance, or a combination of any of those products).
The recruiting licensee can only participate in the regime with the written consent of the candidate. A template consent form is provided in the protocol. The information to be provided to the recruiting licensee will include personal information which must only be shared with the consent of the candidate. Recruiting licensees must take reasonable steps to obtain that consent. The candidate can withdraw consent at any time.
Given by whom?
ACL or AFS licensees who employed or authorised the candidate within the last five years. If the candidate has been with the last licensee for less than 12 months, there is a minimum requirement to also obtain a reference from a prior licensee (if any). Recruiting licensees may elect to obtain references from all licensees for the last five years. This is not limited to candidates who were employed or authorised as financial advisers or mortgage brokers, and applies to all employees and representatives of the referee licensee. The response must be given within 10 business days of the request, or such longer period agreed by both licensees to a maximum of 30 business days.
Given to whom?
By a licensee proposing to employ or appoint the candidate as a financial adviser or mortgage broker.
In what form?
The request for a reference must be substantially in the prescribed form. Requests for clarification of the response may be made in any form and will form part of the regime. Requests and responses must be in writing. If recruiting licensees ask for additional information, qualified privilege will not apply to that information, nor is there an obligation on the referee to respond.
Qualified legal privilege applies for information provided under the protocol. This means the referee is not exposed to claims such as defamation so long as the response is made in good faith.
Licensees must keep records of employees and representatives going back five years to enable requests for references.
The protocol does not prohibit licensees from employing or authorising a prospective representative if a reference cannot be obtained, but in those circumstances, licensees will need to consider whether they have complied with their general conduct obligations in proceeding to employ or authorise the candidate.
Also, section 7 of the Protocol provides that a recruiting licensee who does not obtain a consent from the candidate or has had the consent withdrawn must not request a reference from a referee licensee. If the consent is withdrawn before the reference is provided, the recruiting licensee must inform the referee licensee.
Copy of reference for broker
There is no requirement to provide a copy of the reference to the affected individual as requested by some commentators. However, there is no prohibition on doing so.
Aggregators only participate in the regime if they were or will be become the licensee of the candidate. No qualified privilege will apply if aggregators participate voluntarily. This gap may be addressed by future legislation – but that is likely to take some time. Bringing aggregators into the regime is highly desirable given the important and essential role aggregators play in training and monitoring mortgage brokers.
A stop gap solution for aggregators may be to include a clause in their member agreements (and vary their existing agreements to include a clause) under which brokers expressly agree that irrespective of whether the protocol applies, aggregators may seek and give references in accordance with the protocol and that the member agrees to make no claim or complaint regarding any such reference. This release should also apply to any additional information provided by the referee licensee (as noted above if recruiting licensees ask for additional information, qualified privilege will not apply to that information, nor is there an obligation on the referee to respond).
References must specify whether the referee licensee reported any breach to ASIC in respect of the conduct of the candidate. Accordingly, there is a link between the new breach reporting obligations and the reference checking regime.
Sub-authorised representatives of ACL and AFS licensees are persons appointed by a company which is a representative of a licensee. These sub-authorised representatives are representatives of the licensee, and so the licensee must ensure that it gives and obtains references in respect of these sub-authorised representatives. ASIC notes that licensees may rely on agents to meet their responsibilities, and so licensees could use the resources of their corporate representative.