ASIC extends reference checking protocol to mortgage aggregators

The Australian Securities & Investments Commission (ASIC) has updated its reference checking and information sharing protocol for financial advisers and mortgage brokers to reflect legislative changes.

From tomorrow (20 August), the updated reference checking and information sharing protocol for financial advisers and mortgage brokers will commence.

The changes come after amendments were made to the 2021 protocol (brought in following the royal commission) to enable aggregators to obtain references on mortgage broker licensees and those licensees’ representatives.

Both of the industry associations have been working closely with ASIC on the reforms over the past few years, with the wider industry also looking to improve how brokers are tracked across the industry.

The updated protocol will enable mortgage broking intermediaries, such as mortgage aggregators, to obtain references on mortgage broker licensees and licensees’ representatives.

The new provision therefore means that relevant licensees can request references about a prospective representative from the representative’s current and/or former mortgage aggregator.

This includes information about compliance audits undertaken in the five-year period preceding the date of the reference and includes a question on the template consent and reference forms about any warnings or reprimands to financial advisers from ASIC and the Financial Services and Credit Panel.

Specifically, the ASIC protocol applies to:

• A ‘recruiting licensee’ – For example, a licensee that is considering employing or authorising a prospective representative as a financial adviser or mortgage broker.
• A ‘future mortgage intermediary’ – For example, a mortgage intermediary (e.g. an aggregator) that is considering whether to act as an intermediary for a relevant mortgage broker (i.e. an individual mortgage broker that is either a credit licensee or a current or prospective representative of a credit licensee).
• A ‘referee licensee’ – For example, an individual’s current licensee(s), former licensee(s) in the past five years, current mortgage intermediary, and/or former mortgage intermediary in the past five years from whom a reference is sought.

A licensee’s request for a reference must be responded to within 10 business days (unless they both agree to a longer period, up to a maximum of 30 business days).

There is a transitional period until 28 February 2025 during which time licensees can request references using template consent and reference forms from the 2021 Protocol or the 2024 Protocol.

While the new protocol does not impose obligations on licensees to request these additional references (instead, it is at their discretion), ASIC has said that it “encourages licensees to request references, where appropriate”.

Changes fix ‘a clear gap in the protocol’: MFAA

Reacting to the changes, the Mortgage & Finance Association of Australia (MFAA) welcomed the move, with CEO Anja Pannek saying: “Licensees are required to conduct a reference check before accrediting or onboarding a broker. Overall, this worked well however was restricted to information sharing between licensees only.

“Given many brokers hold their own licence, this meant aggregators were excluded from the process in a large number of cases, a clear gap in the protocol.

“We’ve advocated for the protocol to be extended to aggregators since it was introduced so that it is comprehensive, fit for purpose and reflects how the industry operates. So, we’re pleased to see these changes come into effect.”

According to the MFAA CEO, the expansion of the protocol will make the whole broker accreditation process more robust, holistic, and simpler.

“This change means Australian borrowers can have even more trust and confidence in the broker industry,” she said.

Naveen Ahluwalia, the MFAA’s head of legal compliance, told The Adviser that she believed it was “net positive” for the industry as it not only provided certainty for aggregators that are not the licensees of brokers moving to them, but also made the reference checking process more efficient through standardisation. The time limitations could also reduce any delays brokers may face when changing aggregators.

“The reference forms seek to provide an accurate and factual picture of the broker,” she said, flagging that the form provides details of compliance audits and the findings of the audits in a transparent manner.

Ahluwalia said she believes these changes to the reference checking protocol will remove the need for letters of separation, also known as exit letters.

She said: “The long-standing practice of letters of separation can be a real challenge for brokers and groups. There’s a lack of visibility, there’s a lack of transparency, there are no timeframes around it and often they don’t get shared with brokers. So the reference checking protocol provides for a more transparent and consistent framework for brokers in a wholesome and fulsome way.”

Indeed, brokers can request a copy of the reference under privacy laws.

Pannek said: “Letters of separation are unregulated – reference checking is. The practise of letters of separation was put in place at a time when there was no regulation, no way of checking the background of a broker seeking accreditation or re-accreditation. This practice has now gone way past its expiry date.

“Given we now have a comprehensive reference checking regime that includes all key stakeholders, letters of separation should no longer be required.

“We’ll be working with industry highlighting the need to move from letters of separation to reference checking – both with aggregators and lenders.”

The MFAA has also been working with major aggregator and lender members through its Accreditations Working Group on a simple, easy-to-use accreditation form for brokers moving from one aggregator to another aggregator.

“The aim of the form is to make this process easier for aggregators, lenders and brokers in those cases. The form will be hosted on our website for industry use,” she said.

The MFAA has said it will update its reference checking and information sharing online learning module by 20 August to reflect the changes, including case studies so brokers know what to expect from the reference checking process if they choose to change licensees.

Similarly, the FBAA has welcomed the change, with the association having also worked closely with ASIC on the protocol amendments and their implications for industry.

The association had previously flagged queries to the regulator about the potential for duplication where a recruiting licensee and future mortgage intermediary request a reference in relation to the same individual.

To address the issue, ASIC has now included additional guidance within its info sheet on the new protocol (INFO 257).

[Related: Stronger broker reference checks legislation passed]

Written by Annie Kane

Last Updated: 19 August 2024

Published: 19 August 2024