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ASIC Reference Checking and Information Sharing Protocol – A Mandatory Screening Process Targeting Financial Advisors and Mortgage Brokers
As a consequence of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, from 1 October 2021, licensees must comply, as an obligation under their licence, with the ASIC Corporations and Credit (Reference Checking and Information Sharing Protocol) Instrument 2021/429 (the “ASIC Reference Checking Protocol“).
The objective of the ASIC Reference Checking Protocol (which is made under section 912A of the Corporations Act 2001 (Cth) and section 47 of the National Consumer Credit Protection Act 2009 (Cth)) is to promote better information sharing about the performance history of a prospective financial adviser or mortgage broker between the new ‘recruiting licensee’ (an organisation that holds an Australian Financial Services Licence or Australian Credit Licence seeking to employ or authorise a representative to act as a financial advisor or mortgage broker on their behalf) and the outgoing ‘referee licensee’ (the organisation that the financial advisor or mortgage broker has left in the pursuit of opportunities with a new licensee), by requiring the ‘recruiting licensee’, as a mandatory obligation under the ASIC Reference Checking Protocol, to request a reference report from the ‘referee licensee’ (or licensees) about the prospective financial advisor or mortgage broker in the last five (5) years preceding the request.
What is a reference under the ASIC Reference Checking Protocol?
A reference, given under the ASIC Reference Checking Protocol, is a response to a ‘Template Reference Request’ issued by the ‘recruiting licensee’ to the ‘referee licensee’ in respect of a prospective financial advisor or mortgage broker. The ‘Template Reference Request’ is a prescribed form produced by the Australian Securities and Investments Commission (“ASIC“). The ‘Template Reference Request’ asks a prescribed set of questions to give the ‘recruiting licensee’ an overview of the prospective financial advisor’s or mortgage broker’s conduct and performance history. The reference must be complete, accurate and based on documented facts that have been verified.
What period of employment, or conduct as an authorised representative, does a reference request cover under the ASIC Reference Checking Protocol?
A ‘referee licensee’ is only required to give information about the conduct of a prospective representative that occurred up to five (5) years before the reference is given to the ‘recruiting licensee’. Furthermore, a ‘referee licensee’ is not required to give additional information requested by a ‘recruiting licensee’ that is not covered by the ‘Template Reference Request’. Importantly, any information given by the ‘referee licensee’ that occurred more than five (5) years before the reference is given, or that goes beyond the ‘Template Reference Request’, is not protected by the defence of qualified privilege against defamation action.
Can a 'recruiting licensee' request a reference without the consent of the prospective financial advisor or mortgage broker?
Under the ASIC Reference Checking Protocol, personal information about a prospective financial advisor or mortgage broker can only be shared with the consent of the financial advisor or mortgage broker. Accordingly, before requesting a reference, a ‘recruiting licensee’ must obtain the written consent from the prospective financial advisor or mortgage broker for the reference(s) to be obtained. If a prospective financial advisor or mortgage broker refuses to give consent, the ‘recruiting licensee’ is unable to request a reference from the ‘referee licensee’. The prospective financial advisor or mortgage broker can also withdraw their consent at any time. Unless it is withdrawn, a consent will cease twelve (12) months after it is given.
Whilst the ASIC Reference Checking Protocol does not prohibit a ‘recruiting licensee’ from employing or authorising a prospective financial advisor or mortgage broker to act on their behalf in the absence of a reference (unable to be obtained due to a refused consent), a ‘recruiting licensee’, in those circumstances, may, for obvious reasons, be reluctant to employ or authorise the financial advisor or mortgage broker (especially as the ‘recruiting licensee’ may be concerned about not being able to demonstrate compliance with their general conduct obligations under various ASIC regulatory guides in properly screening prospective financial advisors or mortgage brokers).
Is a prospective financial advisor or mortgage broker entitled to receive a copy of the reference?
The ASIC Reference Checking Protocol does not require a ‘recruiting licensee’ or ‘referee licensee’ to give a prospective financial advisor or mortgage broker a copy of a reference. However, a prospective financial advisor or mortgage broker may be able to obtain a copy of the reference under Australian Privacy Principle 12 “Access to personal information”, including, as applicable the internal privacy policy of either the ‘recruiting licensee’ or the ‘referee licensee’.
What action can a prospective financial advisor or mortgage broker take in respect of an adverse reference?
Where a prospective financial advisor or mortgage broker considers that a ‘referee licensee’ has not acted in accordance with the ASIC Reference Checking Protocol, the prospective financial advisor or mortgage broker may:
- directly approach a ‘referee licensee’ in order to seek to resolve the problem;
- make a complaint with ASIC about a suspected breach of the ASIC Reference Checking Protocol; or
- make a complaint with the Office of the Australian Information Commissioner for disputes about the handling of personal information.
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If you need expert legal advice, assistance, or litigation representation, in respect of an ASIC Reference Protocol related matter or dispute, please contact ADVIILAW today to speak to one of our experienced commercial litigation lawyers.
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