Reference checking and information sharing protocol for financial advisers and mortgage brokers

The the ASIC Corporations and Credit (Reference Checking and Information Sharing Protocol) Instrument 2021/429 will commence on 1 October 2021. This legislation outlines the obligations for licensees in relation to reference checks.

Key takeouts for Advisers:

1. A Recruiting licensee has an obligation to take reasonable steps to obtain reference. However, the Recruiting licensee has an obligation to seek consent of the representative.

2. If consent is not obtained or withdrawn the recruiting licensee must not request a reference from a referee licensee about the prospective representative.

3. Unless withdrawn earlier, a consent will cease at the end of the period of 12 months commencing the day after it is given

Information that may be requested may include:

1. Compliance audits

2. Conduct of the representative

3. Unresolved matters e.g. such as inquiry or investigation that is in progress

4. Any client remedial action e.g. representative being instructed to provide corrective disclosure to a client and compensation being given to a client either as a financial payment or other non-financial remedy

5. Complaints

6. Unprofessional conduct

Key takeouts for a Recruiting licensee:

1. Are obligated to seek consent of representative

   1. must seek the consent, using the template consent form, of a prospective representative to undertake reference checking and information sharing

      1. Example Templates for Financial Advisers can be found HERE

      2. Example Templates for Mortgage Brokers can be found HERE

2. Must not request a reference from a referee licensee about the prospective representative. if they have not

   1. obtained the consent of a prospective representative; or

   2. obtained a consent that has subsequently ceased, or been withdrawn by the prospective representative.

3. May request and obtain additional references from other former licensees

Key takeouts for a Recruiting licensee:

1. Has an obligation to give reference once they receive a request for a reference about a prospective representative from a recruiting licensee.

What if consent or a reference is refused?

According Consultation Paper CP333 ASIC's protocol does not stop you from employing or authorising a prospective representative if a prospective representative does not give you written consent to request a reference, however, you if you decide to employ or authorise the prospective representative you will need to be able to demonstrate, that you complied with your general conduct obligations as a licensee.

If you have taken 'reasonable steps' and a referee licensee fails to comply with their obligation to give you a reference, or if you receive a reference that contains adverse information about a prospective representative, the ASIC protocol does not stop you from employing or authorising a prospective representative.

Reasonable steps may include:

1. Asking for written consent from a prospective representative to request a reference, and

2. if consent is given – requesting a reference from the referee licensee(s) in accordance with ASIC's prescribed protocol.

Again here, you will need to consider, and be able to demonstrate, that you complied with your general conduct obligations for example:

You will need to ensure that the prospective representative is:

1. adequately trained, is competent and complies with relevant legislation.

   1. You may need to do additional background checks or

   2. Perform additional assessments before employing or authorising them, as well as additional monitoring and supervision after they are employed or authorised.

Nikolas Kloufetos, Managing director, Advice Compliance Support

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