The ASIC Corporations and Credit (Reference Checking and Information Sharing Protocol) Instrument 2021/429 (the Protocol) sets out the reference checking and information sharing requirements that apply to financial services licensees and credit licensees. Under the Protocol, licensees must seek certain information regarding candidates when recruiting financial advisers and mortgage brokers. These obligations are explained in ASIC's Information Sheet (INFO 257).
The Protocol was introduced following the Banking Royal Commission and is aimed at promoting better information sharing about the performance and compliance history of financial advisers and mortgage brokers. Specifically, it is intended to enable any past misconduct to be ascertained and shared between past and prospective authorising licensees in the financial advice and mortgage broking industries.
Who does the Protocol apply to?
The Protocol applies to all licensees who are recruiting licensees. You are a recruiting licensee if you are considering employing or authorising a representative as a financial adviser or mortgage broker.
The ASIC protocol requires you, as a recruiting licensee, to seek a reference regarding the applicant from the applicant's current and/or former licensee(s) in the last five years (the referee licensee). The referee licensee(s) is obliged to, under the Protocol, share information with you regarding the applicant, by giving a reference.
The Protocol covers applicants who are seeking a financial adviser or mortgage broking role, even if they have not previously performed those roles. Therefore, you have obligations under the Protocol when the applicant for such a role has engaged in any activities with a licensee in the past 5 years, whether or not these activities are the same as the activities for which you are potentially recruiting them. For example, the Protocol applies when you are recruiting a financial adviser who is or was a mortgage broker representative, as well as a financial adviser who is or was a representative of a licensee engaged in other activities such as general customer service, para-planning, collections and bank-teller activities.
How do I comply with the Protocol, and broader financial services and credit laws, as a recruiting licensee?
Reference checking in accordance with the Protocol should be part of the screening process undertaken by licensees when deciding whether to employ or authorise a representative as a financial adviser or mortgage broker. This should be reflected in all relevant policies and procedures and carried out diligently in practice.
Your obligations as a recruiting licensee are set out in section 6 of the ASIC protocol. You must take reasonable steps to obtain a reference from a referee licensee before you employ or authorise the applicant. This is mandatory but can occur at any time during the recruitment process. For example, you may make an offer of employment or authorisation to the applicant which is subject to satisfactory reference checks.
Reasonable steps include:
- seeking written consent from the applicant to request a reference; and
- if consent is given – requesting a reference from the referee licensee(s) in accordance with the Protocol. On ASIC's view, this includes taking diligent steps to follow up and request an update from referee licensee(s) if a reference has been requested but not yet received.
At a minimum, you need to take steps to obtain references from the following referees:
- if the applicant is currently employed or authorised by a licensee(s), the current licensee(s);
- if the applicant has been employed or authorised by the current licensee for less than 12 months, the current licensee and the most recent former licensee (if any) in the past five years of which the applicant was a representative;
- if the applicant is not currently employed, the most recent former licensee (and, if the applicant was with that licensee for less than 12 months, the next most recent former licensee (if any) of which the applicant was a representative) in the past five years; and
- if the applicant is a licensee in their own right, the applicant themselves.
On top of the minimum requirements prescribed by the Protocol, you may also wish to obtain references from other former licensees that employed or authorised the prospective representative in the past five years (or beyond) in order to check for repeated conduct or ongoing performance issues. Other former licensees who employed or authorised the applicant in the last five years and who receive a request for a reference from you under the Protocol will be obliged to give a reference in relation to the applicant's conduct.
Licensees are also subject to general conduct obligations under section 912A of the Corporations Act 2001 (for financial services licensees) and section 47 of the National Consumer Credit Protection Act 2009 (for credit licensees). These obligations include the need to take reasonable steps to ensure that representatives of the licensee comply with the financial services laws or credit legislation and the need to ensure that representatives are adequately trained and competent to provide the financial services or engage in the credit activities covered by the licence. In order to ensure you comply with these general obligations, you may wish to undertake appropriate background checks beyond what is prescribed by the Protocol before recruiting new representatives.
Seeking consent from the applicant
Before requesting a reference, you must obtain written consent from the applicant. This is specified in the Protocol and is because personal information is being collected about the applicant.
Under the Australian Privacy Principles (APP) guidelines, consent must be given for a specific purpose, and information must only be collected, used and disclosed for that purpose. Information you collect under the Protocol must only be used, disclosed and stored for the purpose of:
- considering the applicant's suitability for employment or authorisation; and
- complying with your general conduct obligations.
Further, APP 5 requires you to notify the applicant about the collection of their personal information.
ASIC has provided a template consent form which must be given to the applicant when seeking their consent (see Schedule 1 of the Protocol). The template contains the necessary information you need to disclose to the applicant regarding the collection of their personal information. You must use this template in its exact form when seeking consent, amending the template only to insert the applicant's name and your business details.
The applicant can withdraw their consent in writing to you at any time. If consent is withdrawn, you cannot rely on their past consent for any future collection, use or disclosure of their personal information. This means that, where consent is withdrawn, you should take note of when this took place and promptly notify the referee licensee(s) of the withdrawal if the referee licensee(s) has not yet given a reference. If consent is not withdrawn, the applicant's consent will be revoked 12 months after it is given and, if the recruitment process is still ongoing, further consent will need to be sought before obtaining references.
Requesting a reference
If you obtain written consent from a prospective representative, you must ask the referee licensee(s) in writing to answer the questions in the template reference request about the applicant. You must include a copy of the applicant's completed consent with your reference request.
We recommend you use this template in its exact form when requesting consent, amending the template only to make formatting changes and other minor amendments. You should not amend or alter any of the questions. Note that question 2 in the template (seeking information about compliance audits) does not apply where the applicant is not and has not formerly been a financial adviser or mortgage broker. Rather than omitting the question from the template where you believe it does not apply, we suggest that, in such situations you alert the referee licensee(s) to the fact that the question does not apply in certain situations.
What if the applicant does not give their consent?
The Protocol imposes obligations only on licensees, and not on applicants. The applicant has the right to withhold or withdraw their consent. If the applicant does not give written consent for you to request a reference, you will not be able to do so under the Protocol.
ASIC does not prohibit you from employing or authorising an applicant in circumstances where you have not obtained the applicant's consent for obtaining a reference (or where you have received such consent but have not received a reference from the referee licensee(s) or have received a reference with adverse information about the applicant). However, you will need to consider, and ensure that you remain able to comply with, your general conduct obligations as a licensee. Where consent has been refused, you may want to consider:
- asking the applicant to reconsider giving their consent, or engaging with them to find out why consent is being refused.
- performing additional background checks or assessments on the applicant (that do not involve obtaining a reference).
If you decide to employ or authorise the applicant, you will need to ensure that they are adequately trained, are competent and take reasonable steps to ensure that they comply with relevant legislation. You can mitigate the risk of you breaching your general conduct obligations by putting in place more stringent monitoring and supervision arrangements than you normally would for other advisers who have been subject to satisfactory reference checks, such as more frequent or thorough file reviews, or pre-vetting processes for their advice documentation.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.