What is the Reference checking Protocol?
From the 1st October 2021, reference checking will be a compulsory step for holders of an Australian Credit Licence (ACL). This means you will need to collect references for any broker you bring into your business (regardless of whether they are an authorised representative or employee) and upon request, you will need to provide a reference for any broker who leaves your business.
This Protocol does not apply to all finance brokers. In the same way that best interests duty applies only to mortgage brokers, the requirement for reference checking will only apply to mortgage brokers.
Obtaining a reference
As part of your recruitment process, you will need to obtain consent from the broker to obtain a written reference from their previous licensee. If the consent is withdrawn for any reason, you cannot proceed with obtaining the reference.
References must be provided for the last five-year period, or the total period if the broker has been operating for less than five years.
Your obligations as the recruiting licensee is to take reasonable steps to obtain a written reference. You cannot avoid obtaining a reference, and taking reasonable steps apply to both obtaining the appropriate consent and requesting the written reference.
For example:
You are looking to hire a new broker, Sam, in your business and obtain the required consent form as part of Sam’s employment application. Prior to seeking employment with you, Sam worked for the CBA as a mobile lender (2015-2020) and as a mortgage broker with 123 Finance (2020-2021).
In this instance, you would need to seek references from both CBA and 123 Finance.
If you do receive a reference, there is no requirement to provide a copy to the broker (and by the same standard there is nothing to stop you providing the reference either).
Providing a reference
You may also be required to provide a written reference for any broker who has been involved in your business over the last five years. The protocol requires references for brokers dating back over a five-year period, so while it does not come into effect until 1 October 2021 it relates to any broker who has been involved in your business since October 2016.
The request for a reference must be provided in writing to you.
For example, between 2015 and 2018 you had a broker by the name of Joe who operated as an authorised representative under your ACL. Joe is now seeking employment with ABC Home Loans. ABC Home Loans will send you a request for a written reference to understand Joe’s performance while an authorised representative of your company.
Timelines:
The protocols outline the timeframe for both giving and receiving references.
If you are providing a reference you must do so within 10 days. By mutual agreement of both licensees (you as the giver and the licensee requesting the reference) the timeframe can be up to 30 days.
The request for a reference and providing a reference must be in writing.
What must the reference include?
ASIC have provided a guidance template with the information which should be included in the reference including information about the broker’s role, period of authorisation under that ACL, conduct issues, compliance audits and if there were any breaches or resolved matters (investigations or complaints).
However, you can request additional information when seeking a reference from another licensee. Likewise, if you receive a request to provide a reference, there may be additional information the recruiting licensee requests which is not in the standard ASIC guidance template. Any additional information requested or sought which is outside the guidance template does not need to be supplied by the ACL providing the reference and if the ACL does include this, it is outside of the qualified privilege guidelines.
What is qualified privilege?
To enable licensees to share information honestly, qualified privilege applies when you share information in accordance with the ASIC protocol. The defence of qualified privilege allows open communication in certain relationships without the risk of defamation action. However, if you provide a reference to an ACL holder which includes information outside of the standard ASIC guidance template, this additional information will not be covered by the qualified privilege rules.
Record keeping
ACL holders are required to maintain records of their employees and authorised representatives going back 5 years so that you are able to complete a reference if required.
What happens if you do not get a reference?
If you are unable to get a reference from a previous ACL, this does not stop you from employing or authorising the new broker. However, as an ACL holder you will need to consider whether by continuing to employ or authorising this person that you have complied with your general conduct obligations.
What happens if you employ a broker and then the reference is returned which provides adverse information?
In these circumstances, you will similarly need to consider, and be able to demonstrate that you complied with, your general conduct obligations if you decide to employ or authorise the prospective representative.
For example, you will need to ensure that the prospective representative is adequately trained, is competent and complies with relevant legislation. This means you may need to do additional background checks or assessments before employing or authorising them, as well as additional monitoring and supervision after they are employed or authorised.
Summary - Credit representatives of Connective
We will incorporate the consent for a reference into Connective’s application form and onboarding process.
The reference request process will not hold up the onboarding process, however if we do not receive the reference within the required timeframe then we may be required to take additional steps to ensure that Connective is meeting the general conduct obligations.
Summary - Australian Credit Licence holders
Implement a process within your business that includes the requirement to obtain and provide references. The main part of this process is to ensure that you have all the information available to complete a request for a reference. This information should cover a period of the last 5 years of your employees or representatives.
I hold my own ACL and am considering moving groups? How does the protocol apply to me?
If you currently hold your own license and are considering moving to another group then the recruiting licensee will seek to understand from you what processes you had in place to ensure compliance and your conduct as a licensee. As an example, if you used a third party service provider you may want to provide copies of your audits to the current licensee subject to you being able to share and disclose these reports with a third party.
For more information relating to the Reference Checking Protocol you can read the ASIC INFO Sheet here.
ASIC’s reference checking template can be found here.
For more information on Reference checking Protocol- consent wording click here.