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Financial Planning
Financial adviser reference checks under scrutiny

ASIC has released a consultation paper seeking feedback on reference checking protocols for financial advisers and mortgage brokers.

Requiring financial advisers to have reference checks was one of the recommendations to come out of the Royal Commission. During the inquiry it was found licensees were not doing enough to communicate with each other on the background of advisers they were employing.

The Financial Sector Reform (Hayne Royal Commission Response) Bill which has been introduced to parliament includes obligations for AFSLs to comply with an ASIC reference checking and information sharing protocol.

Now, ASIC has developed a draft protocol and is consulting with the industry on its implementation. Stakeholders have until 29 January 2021 to provide feedback.

In particular, ASIC is seeking consultation on how far back reference checks should go, proposing that a reference from the adviser's current or most recent licensee does not suffice, or whether all licensees the adviser has been attached to in the last five years is more appropriate.

ASIC is proposing that licensees be able to request more than one reference from a referring licensee before offering employment to an adviser. In providing an additional reference, the referring licensee must provide a complete response and not rely on the information already provided in the previous reference.

Licensees are not obliged to provide information on conduct that occurred more than five years ago, but may volunteer any information they are privy to that they feel is relevant.

It also is suggested that all references be provided within 10 days of the request. It may take longer where agreed between both licensees but cannot take any more than 20 days.

In March this year, the Financial Planning Association of Australia threw its weight behind the proposed protocol.

In its submission on the proposed legislation, the FPA suggested reference checking should go further than just looking at those financial advisers giving personal advice.

"The FPA has clear examples of financial advisers who have been banned from providing financial advice by ASIC who move into management overseeing the provision of financial advice by employed or authorised financial advisers of the licensee," it said.

The FPA wanted to see the new measures extended beyond just those providing personal advice and applied to people employed or authorised by AFSLs to provide general advice, those with the responsibility or ability to influence the advice process and management and directorships including responsible managers.

ASIC's draft protocol does not go as far as the FPA suggested. The draft says recruiting licensees will have to apply the reference check protocol to those engaged in activities from general customer service to paraplanning, collections and bank-teller activities but only when that individual is seeking to become a financial adviser (or mortgage broker) at the new licensee.

In June this year, ASIC banned one financial adviser for five years after he had cycled through seven AFSLs in nine years.

Read more: ASICFPAFinancial Sector Reform Hayne Royal CommissionFinancial Planning Association of Australia
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