Dispelling the myths around regulation

While most brokers should by now be aware that they’ll need to register with the Australian Securities and Investments Commission (ASIC) by 30 June 2010, many still have burning questions about the new licensing regime.

SHOULD I HOLD AN ACL?

Following the recent ASIC Credit Road Shows and continued broker feedback, it’s clear a number of brokers are still uncertain as to whether they need to obtain their own Australian Credit Licence (ACL) or become an authorised representative of an existing ACL holder.

Steve Weston, Advantedge general manager, distribution for broker platforms and lending, says Advantedge will offer its brokers a licensing choice when regulation kicks in.

Mr Weston says larger brokerages and brokerages that offer a wide range of products might benefit from holding their own ACL. Smaller brokers on the other hand may find it less of a drain on their resources to become an authorised representative of a licensed broker.

“For some brokers, the licensing application process and preparation time could mean that’s one less loan they could be writing,” says Mr Weston.

Greg Ashe, director of risk management firm QED Risk Services, who specialise in ASIC licensing and documentation says brokers need to consider the pros and cons of the available licensing options and consider how holding an ACL will suit their needs both now and in the future.

Mr Ashe says for some brokers, holding one’s own ACL is worth the modest set-up cost. “Other brokers, though, may prefer to let someone else carry the responsibility of being an ACL holder so they can simply get on with the job of writing loans,” he says.

WHAT COSTS AM I LOOKING AT?

For brokers applying for an ACL, the fee payable will depend on the total amount of credit they provided or referred to a credit provider in the previous financial year.

It starts at $450 for an individual and $1,000 for a company, partnership or trustee. For most brokers, an ACL will cost between $450 and $1,000.

For example, a broker who wrote $90 million in loan applications in FY 2009/10 can expect to pay around $450 for an ACL.

Mr Ashe says the cost involved in becoming an ACL holder or an authorised representative of an ACL holder may in fact be negligible.

“[It] is a myth that doing it one way is cheaper than doing it another way,” he says.

But Mr Ashe says in weighing up their options, brokers should take into account the value of their time spent in preparing their ACL application.

“Time spent creating the required policies and procedures in preparing the ACL application can be revenue dollars lost to the broker,” Mr Ashe says, noting that external support and risk management services are available.

WILL I LOSE MY INDEPENDENCE?

While some brokers fear they will lose their identity and independence if they choose to operate under their aggregator’s ACL, this fear is largely unfounded.

A sentiment echoed by Advantedge chief executive officer Drew Hall. Speaking at the Mortgage Innovation conference in March, Mr Hall said becoming an authorised representative of an ACL holder will still enable brokers to “run their own show”.

“We understand that brokers want to maintain their independence and our credit representative business model enables this to happen,” Mr Hall said.

I HOLD AN AFS LICENCE. DO I GET A DISCOUNT (ON MY NEW ACL)?

Brokers who hold an existing AFS Licence are not eligible for a discount on their ACL application.

A 10 per cent discount is available for ‘streamlined applicants’ only. A streamlined applicant is an ADI, a lender’s mortgage insurer, or in some cases, a broker who has a Class ‘A’ or ‘B’ Finance Brokers Licence under the Finance Brokers Control Act 1975 (WA).

DO ANY LICENSING EXEMPTIONS APPLY TO ME?

Brokers don’t need an ACL or to be appointed as a Credit Representative if they are an employee or director of an ACL holder.

HOW WILL MY REFERRAL RELATIONSHIPS BE IMPACTED BY THE CHANGES?

ASIC shed some light on this issue during its National Credit Road Show. They indicated that the question of whether the referrer needs to be licensed (or a credit representative of an ACL holder) depends in part on whether the referring conduct is in relation to a particular loan contract from a particular provider.

It also depends on whether that activity is exempt under the referrer exemption.

The referrer exemption is a narrow exemption from licensing that applies if the referrer simply informs the customer that a particular broker is able to provide help by suggesting or assisting on the credit contract.

However, it’s imperative that the referrer discloses at the same time any benefit or commission the referrer will receive.

In any other case, a person (including a referrer) who is ‘suggesting’ or ‘assisting’ in relation to a particular loan contract from a particular provider will also need to be licensed.

WHAT DO I NEED TO DO RIGHT NOW?

Brokers first need to register before 30 June 2010.

“It’s a simple process: it takes about 15 minutes online, so brokers should just do it now to get it out of the way,” Mr Ashe says.

Mr Ashe says brokers should actively ensure they have satisfied the preliminary requirements for the ACL application, which is being a member of an External Dispute Resolution Scheme, carrying out criminal and solvency background checks of companies, directors and officers, partners and trustees, and ensuring their business details registered with ASIC are correct.

FOR MORE INFOMATION

For more information, check out ASIC’s website at: www.asic.gov.au/credit or phone 1300 300 630.