ASIC is seeking input from the industry into proposed new reference checking protocols designed to stop advisers who are facing disciplinary action from swapping licensees, ahead of legislation that is set to take effect on October 1, 2021.
The regulator put out Consultation Paper 333 today, Reference checking and information sharing, which seeks feedback on the best way for ASIC to implement new powers described in a Bill read to parliament last week addressing responses to the Hayne Royal Commission.
The Bill seeks to insert an amendment into the Corporations Act allowing ASIC to determine a “reference checking and information sharing protocol” that licensees would need to adhere to when taking on new advisers.
As per Hayne’s recommendation, the protocol would apply to both financial advisers and mortgage brokers.
“Consistent with the purpose of the Bill, the intention of the ASIC protocol is to promote better information sharing about the performance history of financial advisers and mortgage brokers—focusing on compliance, risk management and quality of advice,” ASIC states.
Attached to ASIC’s consultation paper is a draft protocol which draws upon ASIC’s own Report 515 (into how large institutions monitor advisers), the Standards Australia Handbook and the Australian Banking Association protocol – which Hayne referred to as a benchmark in his recommendation.
The draft protocol requires a licensee to “take reasonable steps” to request a reference about a prospective representative from the former licensee, including seeking written consent from the adviser first and then requesting the reference from the licensee, who must comply.
“Where the prospective representative is currently a licensee in their own right, the recruiting licensee must ask for a reference from the prospective representative about themselves in their capacity as a licensee,” ASIC adds.
If either consent or the reference itself is refused, ASIC state, the licensee is not prohibited from employing the prospective adviser, but must be able to show reasonable steps were taken to obtain the reference. Licensees will still also need to maintain general obligations under detailed in the Corporations Act.
ASIC poses a number of questions throughout the consultation paper that could lead to a broadening of the scope of the guidance.
Among those is whether the licensee should be restricted to only asking the most recent licensee for a referral, or whether this should be extended to other former employers. Further, ASIC asks, should recruiting licensees also have access to referrals previously obtained by the referring employer?