ASIC releases adviser reference checking protocol

The corporate regulator has released its protocol around reference checking by licensees who are looking to employ financial advisers and mortgage brokers. 

The protocols follow the Financial Sector Reform (Hayne Royal Commission Response) Act 2020 which introduced obligations on Australian financial services licensees (AFSLs) and credit licensees to comply with an Australian Securities and Investments Commission (ASIC) protocol in relation to reference checking. 

The act and the protocol would commence on 1 October, 2021. 

“The ASIC protocol sets out obligations for licensees to undertake a reference check and share information on an individual seeking to be employed or authorised as a financial adviser or mortgage broker,” ASIC said. 

“The reforms will promote better information sharing about the performance history of financial advisers and mortgage brokers—focusing on compliance, conduct and risk management. 

“To help licensees comply with the new reference checking requirements, ASIC has prepared an information sheet and published examples of references as a guide. Consequential updates to existing ASIC guidance have also been made to reflect the new requirements.” 

The protocol required a recruiting licensee that was considering employing an individual as a prospective representative of the recruiting licensee must take reasonable steps to obtain a reference about the individual from: 

Where the individual: 

• Is a representative of a current financial services licensee and has been a representative of that licensee for 12 months or more—that licensee; and 
• Is a representative of a current financial services licensee and has been a representative of that licensee for less than 12 months—that licensee and the most recent former financial services licensee (if any) of which the individual was a representative; and 
• Is not a representative of a current financial services licensee, but was a representative of the most recent former financial services licensee for 12 months or more—that licensee; and 
• Is not a representative of a current financial services licensee, but was a representative of the most recent former financial services licensee for less than 12 months—that licensee and the next most recent former financial services licensee (if any) of which the individual was a representative; and 
• Is a financial services licensee—that licensee.   

ASIC said the protocol followed recommendations from the Hayne Royal Commission which found that financial services licensees were not doing enough to communicate between themselves about the backgrounds of prospective employees. In particular:

1. The reference checking and information sharing protocol administered by the Australian Banking Association is limited to signatories and not consistently applied;
2. Financial services licensees frequently fail to respond adequately to requests for references regarding their previous employees; and
3. Financial services licensees do not always take the information they receive about prospective representatives seriously enough.