Compliance Basics: Ask before you authorise

 
All AFSL holders should be required, as a condition of their licence, to give effect to reference checking and information-sharing protocols for financial advisers
— Final Report Recommendation 2.7 "Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry".

The Australian Standard

Around 2006, ASIC and the Industry Associations (FPA, AFA, IFSA [now FICS], the SDIA and ABA) developed and then launched HB 322-2007 “Reference Checking in the Financial Services Industry”.

This guide supported, and reflected, the Australian Standard and was designed to minimise recruitment risk without increasing Licensees’ exposure to defamation or other legal risks.

In fact, ASIC made repeated efforts to encourage the industry to properly address recruitment risks.

It may not have been followed by some institutional licensees , but it was, and remains, an incredibly useful resource.


Protecting the former employer

Few employers may be willing to provide references (beyond basic employment dates) without the consent of their former-employee and an indemnification covering their responses.

In fact, some licensees point-blank refuse to do so in any circumstances.

You should obtain your own legal advice, but this Consent and Indemnity might help.

As an aside, a Licensees failure to categorically refuse to provide a reference under any circumstances, may be the most reliable indicator of a poor compliance culture. Don’t accept ‘bank policy’ as an acceptable excuse for failing to identify ‘bad apples’ or alert you to known conduct risks.


What, and how, to ask.

Your potential liability (and that of the former employer) depends on what you ask and how they answer.

Recursive anecdotes and incisive questions might make the process more interesting, but they significantly increase the former employers’ risks in the first instance and your own in the latter.

An effective checking process is based on a consistent approach that only requires, and records, factual answers from the previous employer.

You should obtain your own legal advice, but this Checklist may help you refine your process.


infographic

It’s more of a primer than an exhaustive guideline, but the attached infographic might help you structure your questions to those people nominated as referees.


The Banking Industry Conduct Background Check Protocol

As ironic as it may be, the Australian Banking Association released a protocol designed to replace the Australian Standard which, it’s fair to say, was never embraced by the Banks or the Licensees under their care and control.

The solution seems to be to embrace brevity and narrow the scope of enquiry to narrowly defined ‘misconduct’.

Surprisingly, neither culture, unfairness nor breach of social license are matters that the ABA think appropriate to address.