“Well, who are you? (Who are you? Who, who, who, who?)
I really want to know (Who are you? Who, who, who, who?)
Tell me who are you? (Who are you? Who, who, who, who?)
Because I really want to know (Who are you? Who, who, who, who?)”
— The Who, ‘Who are you’
- From 1 October 2021, licensees will be subject to a new specific obligation to undertake reference checking and information sharing regarding a former, current or prospective representative (ASIC’s Reference Checking and Information Sharing protocol).
- In line with their obligations under s912A, Recruiting Licensees must take reasonable steps to obtain information in relation to the individual’s employment and performance history.
- In line with their obligations under s912A, Referring Licensees must provide specified information in a reference in relation to a prospective representative of a recruiting licensee.
- Licensee’s will require the individual’s consent to contact previous Licensees and parties and have qualified privilege in respect of information shared in accordance with the protocol.
CSI (Confirm, Scrutinise and Inform)
“The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (the Royal Commission) identified that financial services licensees were not doing enough to communicate between themselves about the backgrounds of prospective employees. ”
— Explanatory Statement ASIC Corporations and Credit (Reference Checking and Information Sharing Protocol) Instrument 2021/429
No-one was surprised to learn that Licensees (particularly institutional licensees) did little, if anything, to prevent ‘bad apples’ from hopping from licensee to Licensee. In fact, the Royal Commission identified many examples where institutional licensees, in particular, frustrated other Licensee’s attempts to obtain relevant information about advisers’ conduct, complaints and compliance history.
This occurred despite the existence of an Australian Standard on Reference Checking in Financial Services developed with the active involvement of the FSC, ABA, AFA, FPA and NIBA. Given that self-regulation failed spectacularly in the face of commercial self-interest, the carrot has been replaced with the stick.
From 1 October 2021, Licensees must comply with ASIC’s Reference Checking and Information Sharing protocol. The intention of the protocol is to promote better information sharing about the performance history of financial advisers – focusing on compliance, risk management and advice quality.
ASIC’s Checking and Information Sharing Protocol is the benchmark for Licensees, intended to promote better information sharing in the financial advice and mortgage broking industries.
The Protocol sets out obligations for Licensees to undertake on an individual seeking to be employed or authorised as a financial adviser or mortgage broker.
In line with their obligations under s912A, Licensees must take reasonable steps to obtain (or provide) information in relation to the individual’s employment and performance history.
Licensee’s will require the individual’s consent to contact previous Licensees.
The requirement might not be as problematic as its implementation. For example:
- Are you prepared for the individual to refuse to provide consent?
- How will you react to bad news (or the Referring Licensee’s refusal to respond)?
- If you proceed to appointment, how can you demonstrate compliance these obligations?
We have some ideas.
Read ASIC Protocol
It can’t hurt to ask (but it will if you don’t)
“The reference checking and information sharing obligation applies to both financial services licensees and credit licensees. This is intended to enable any past misconduct by a person to be ascertained and shared between the financial advice and mortgage broking industries, particularly where the person seeks to move from one industry to the other. It also covers representatives of licensees who have not been a financial adviser or mortgage broker and are seeking to move into these roles.”
— Explanatory Statement ASIC Corporations and Credit (Reference Checking and Information Sharing Protocol) Instrument 2021/429 at 11
The industry’s failure to implement and consistently apply the Australian Standard on Reference Checking they helped to develop, is a compelling argument against self-regulation.
As a result of the issues identified by Commissioner Hayne, increased regulation was an inevitable consequence of this institutional recalcitrance. This is the reason we are now burdened by glorious purpose and required to comply with ASIC Corporations and Credit (Reference Checking and Information Sharing Protocol) Instrument 2021/429. This is also the reason why non-compliance with the Protocol attracts civil penalties.
We’ll run through the basics but from an operation perspective, have you considered:
- what information you must, should and should not request or provide?
- whether your record keeping is adequate to ensure you are able to respond in a timely manner
- whether your current processes, will assist you to obtain, collate and summarise the information
- the measures you have in place to confirm the completeness and accuracy of the shared information.
If you are a Licensee that is considering employing or authorising someone that will provide personal financial product advice (or credit assistance) to retail clients, then you are obliged to take reasonable steps to obtain a reference from their current licensee (or former licensees within the previous 5 years).
Acknowledging legitimate commercial considerations, there’s some flexibility in the timing of the reference; you can make enquiries at any point in the employment process even after offering employment or authorisation (as long as satisfactory references were established as an essential pre-condition for employment or authorisation).
You need the formal consent of the potential recruit to make these enquiries.
If a potential recruit doesn’t provide consent, or withdraws their consent, you can’t make the enquiries required by the Instrument. In this case, although this doesn’t stop you from recruiting and appointing them, you’d need to consider your own (regulatory) risk appetite and give considered thought to how, and to what extent, that decision can be demonstrated to be a reasonable response.
If you’re worried about what questions to ask, you can relax a little. ASIC have provided templates for both financial advisers and credit representatives.
Financial Adviser Reference Template
Credit Representative Reference Template
If you’re curious about the mandatory content of the reference request, it must encompass
- Background information to identify the prospective representative and outline their previous roles and responsibilities;
- Compliance audit results which focuses on the outcomes of compliance audits previously undertaken on the representative (including remediation and training) and non-compliance with financial services laws;
- Conduct information particularly any breaches attributed to the applicant or the applicant’s conduct;
- Unresolved matters which is less a psychological/profiling matter and more a summary of unresolved enquiries or investigations involving the applicant including ongoing or unresolved claims, actions or investigations.
Regrets, I’ve had a few
“..the defence of qualified privilege does not apply to such information that is shared outside the obligations of the ASIC protocol”
— ASIC Corporations and Credit (Reference checking and information sharing protocol) Instrument 2021/429
Even given that reference checking is a licensee obligation, there will be some who may be reluctant to participate on the basis of commercial contracts, Privacy or fears of litigation.
While a reasonable licensee would reject these objections, they are still frequently cited by licensees unable, or unwilling, to share information.
So let’s address the objections briefly.
First, ASIC have confirmed Licensees must not “enter into any arrangements or agreements with any individual that limit your ability to collect, use, disclose and store information under the ASIC protocol”. Logically, they can neither maintain nor rely on commercial arrangements or agreements that frustrate the purpose of the protocol.
Second, if the applicant’s consent is secured and the information collected under the Protocol only collected, used, disclosed or stored in accordance with the Protocol, then it is permitted under the Privacy Act.
Third, parties have a defence of qualified privilege that protects them against claims or damages as a result of sharing information “honestly and frankly” in compliance with the protocol. The privilege is only threatened, or invalidated, when the queries extend beyond the mandated areas or include “subjective information or opinions about the prospective representative’s reputation or character being included in a reference, including spurious or vexatious matters”.
Given a Licensee’s obligation to act “efficiently, honestly and fairly”, it’s no surprise that strict timelines apply.
Licensees will have 10 business days to respond to your reference request.
This time frame can be extended (to a maximum of 30 business days), but only in the event both Licensees have agreed to the extension.
The same timetable applies to any clarifying questions you may have about the information they provided to you.
How can we help you?
The Regulator’s increased scrutiny on Licensees’ recruitment policies is, in the circumstances, an entirely reasonable to historic practices and obvious failures.
They may, however, prove problematic for Licensees without the qualified and experienced staff necessary to operationalise these requirements or those without the systems to structure and evidence the process.
In addition to providing a compliance platform that addresses this and other key obligations, our experienced Compliance Operations Team are well positioned to act, as your agent, to make these and other enquiries to streamline your recruitment processes.
Our team will run the process from the start of the recruitment up to your final decision, they’ll liaise with the required parties and collate the necessary information from your prospective applicant. They’ll scrutinise and confirm the information supplied, and provide you with the certainty you need to make an informed decision on whether or not to appoint the applicant.
Alternatively, we’re available to assist you with drafting your response to the prospective Licensee’s request, drawing on the granular information contained OpenAFSL or simply support you to provide accurate and factual information in a timely manner.
If you need help, reach out.
Your call to action:
- Review your existing documents, systems and processes to ensure that your capture (and can provide) the necessary information.
- Review your existing Agreements to ensure they do not contradict ASIC’s Protocol.
- Ensure your Representatives understand what information about them will be provided or requested
- Train your staff on the requirements (and the importance of obtaining formal consent)
- Review your record keeping systems, to ensure that you can provide complete and accurate information in the designated timeframes.