Business outcomes - Chart your course

Outsourcing effectively lets someone else take over the ‘details' of running a business so brokers can get right down to what they do best - writing loans.

But with licensing applications opening from 1 July 2010, brokers will soon be able to outsource another area of their business: regulatory compliance.

UNDERSTANDING COMPLIANCE

The phrase ‘outsourcing compliance' can be a misnomer.

While ASIC encourages Australian Credit Licence (ACL) holders to outsource their business activities in order to maximise efficiency, the corporate regulator has made it very clear that ACL holders cannot outsource their responsibilities as licensees.

For example, an ACL holder who engages a company to train its representatives remains primarily responsible for ensuring its representatives are competent and adequately trained.

So when it comes to outsourcing compliance, it's important that the objective is not to feign ignorance of one's legal duties, rather, it's about having someone from the outside facilitate your role as an ACL holder.

THE MOVE TO LICENSING

A recent industry straw poll by The Adviser showed that of the brokers surveyed, the majority - 57.3 per cent - have decided they will become ACL holders rather than credit representatives. In other words, the majority have decided they will carry the burden of compliance.

Under the national credit legislation, ACL holders will have ‘broad compliance obligations' and will have to meet these obligations through clearly documented systems and processes.

In order to hold an ACL, brokers must observe these three key rules:

1. ACT HONESTLY - Do all things necessary to ensure they engage in credit activities efficiently, honestly and fairly.
2. FOLLOW THE RULES - Comply with the credit legislation.
3. RESPECT BOUNDARIES - Comply with the conditions of their credit licence to "promote market integrity".

To satisfy each of these broad compliance obligations, ACL holders will need to have measures to take into account specific risks and ensure communication, monitoring and effective business management. This includes having systems to monitor and manage a brokerage's internal systems, people and resources.

For some brokers, this will not mean a substantial change to their existing business structure.

MFAA accredited brokers, for example, are currently required to meet certain education and other requirements in order to retain their accreditation with the peak industry body. The new legislative compliance obligations are unlikely to require a significant restructure of their current business activities.

But for others, the new compliance obligations will mean that brokers will need to review their current business systems and change their operating regime. Many will need to create policies and procedures where none existed before, carry out background checks on staff to ensure their personal records and qualifications are up to scratch, and will need to get their financial paperwork in order for future auditing purposes.

These changes will cost those brokers time and money - and that's where outsourcing can help.

QED Risk Management Services is one company that is helping brokerages navigate the licensing and compliance minefield.

"Our clients range from dedicated sole trader businesses to large aggregator groups with 500 brokers under their name," the company's director Greg Ashe says.

The company works to cut a significant portion of time out of the licensing and compliance process. It meets with clients and extracts business details, then uses that information to prepare relevant policies, procedures and other documents relevant to regulatory compliance.

"We sit down with a broker for about two hours, and in that time, we ask questions about the business, staff and resources to get the information we need," Mr Ashe says.

"This saves the broker a lot of time."

FINDING EXPERTS IN THE FIELD

Brokers who outsource compliance will also receive external guidance from professionals familiar with ASIC's requirements.

Home Loans Etc mortgage planner Raun Burger says that while his aggregator has been helpful in communicating information and changes regarding the new credit legislation, there are still many grey areas as ASIC refines the legislation.

He says in many instances, brokers are still fumbling through.

"It's because the legislation is new and hasn't been tested yet," Mr Burger says.

However, companies like QED Risk Management Services are experienced in dealing with compliance and credit regulation having worked within the financial services industry as it undertook compliance obligations when the Australian Financial Services Licence was introduced.

"We have industry experience - we helped financial planners ease into regulation and we are ready to help brokers comply with their obligations under the national credit legislation," QED's Mr Ashe says.

And while some large brokerages like Mortgage Choice have set up a compliance department to cater for its franchisees, there are other brokerages in Australia who will not have the same benefits, and may struggle through the business of compliance on their own.

"It will be difficult for many brokers to find competent staff within an organisation to manage that side of the business on their own," Mr Ashe says.

"The legislation is new, which means there aren't a lot of experts in the field yet."

VALUE-ADDED SERVICES

Outsource company Gold Seal Risk Management Services director Claire Wivell Plater agrees that outsourcing compliance helps lighten a broker's load.

But once a broker sets up initial compliance systems, the broad compliance obligations do not stop there. In fact, they are ongoing, and business compliance systems require regular monitoring and maintenance. Ms Wivell Plater says engaging a compliance consultant on an ongoing basis is akin to having advice ‘on tap'.

Gold Seal provides a consultancy service on an ‘as needed basis'. Rather than visiting a place of business and checking off a ‘to do' list, Ms Wivell Plater says the company's role is to facilitate the manager's compliance by giving specialised advice.

"Many brokers would be aware of their compliance obligations generally once systems are in place, but when questions arise from time to time it's important for a broker to have someone who they can call on," she says.