Financial services lawyer Samantha Hills

New adviser reference checking and information sharing protocols will require significant extra work and a variable amount of added risk for licensees according to Holley Nethercote financial services lawyer and senior associate Samantha Hills.

Addressing lawyers and compliance specialists during a recent webinar to discuss the regulatory changes hitting advice in “Red October“, Hills said the new law will result in “micromanagement of the recruiting process”, given there is “quite a bit of detail in the paperwork”.

From October 1, before hiring an adviser or mortgage broker ‘recruiting licensees’ must seek consent from prospective representatives, request a reference from past licensees using a template and keep relevant information records.

‘Referee licensees’ must provide accurate references within 10 business days (unless otherwise agreed at 30 days) and keep similar records.

Of concern for referee licensees, Hills explained, is the added risk of defamation and breach of confidence charges they face when providing information to recruiting licensees that may fall outside the scope of information requests.

ASIC’s reference request template is relatively straightforward, but does contain “brief description” requests in areas such as ‘main responsibilities’ and ‘compliance audit outcomes’ that could present grey areas in terms of disclosure.

“If you’re the licensee who’s approached to give a reference, then you’re obliged to respond to that request if it’s presented in the form set out in the protocol,” Hills said. “And you’ll have a qualified privilege protection and a protection against any action for breach of confidence, provided you only provide the information that’s sought within that protocol framework.”

Recruiting licensees are at liberty to provide further information, she continued, and referee licensees are similarly at liberty to provide it. But therein lies the risk.

“You need to decide as a [referee] licensee, whether you want to run the gauntlet of providing additional information outside the protocol because you then open yourself up to the possibility of actions of defamation and breach of confidence,” Hills said.

According to ASIC’s information sheet, sticking to the information parameters on the consent request is the only way to ensure referee licensees don’t breach the Privacy Act.

“Before requesting a reference, you must obtain written consent from a prospective representative for the reference(s) to be obtained,” the regulator states.

“This ensures that personal information is being handled consistently with the consent given by a prospective representative and that the collection, use, disclosure and storage of that personal information by licensees does not breach the Australian Privacy Principles contained in the [Privacy Act].”

Timing mismatch

Hills also identified an area of consternation for recruiting licensees within the reference checking and information sharing protocols: exactly when they should start the reference checking process.

“The thing that triggers the need for you to seek this kind of reference is when you are a licensee who’s considering whether to appoint someone as a mortgage broker or financial adviser,” Hills said.

While the wording in the legislation indicates the recruiting licensee should start this process early, she continued, ASIC’s guidance is a little more sanguine.

“It’s interesting, in ASIC’s information sheet 257 they have actually said… it’s up to you when you do it in your recruitment process,” Hills said. “So you can leave this right till the end of you want.”






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