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23 November 2020
The Australian Securities and Investments Commission (ASIC) has released a consultation paper over its proposed plan to implement a reference checking and information sharing protocol for financial advisers.
Requiring financial licensees to carry out background checks of advisers before hiring them is one of the key recommendations made by the Hayne royal commission in its final report to the Government last year.
The royal commission found licensees were not doing enough to share information about the background of prospective financial advisers.
“They frequently fail to respond adequately to requests for references on their previous employees,” ASIC says in the consultation paper. “Also, if they are the recruiting licensees, they do not always take the information provided to them by referees seriously enough.”
The Government has accepted the recommendation – which also applies to mortgage brokers – and introduced the Financial Sector Reform (Hayne Royal Commission Response) Bill into Parliament on November 12, with a commencement date of October 1 next year.
If the Bill is passed, ASIC will have the power to prescribe obligations to give effect to a reference checking and information sharing protocol for financial advisers and mortgage brokers.
The corporate regulator says its draft ASIC Protocol sets out obligations for licensees in relation to undertaking a reference check on an individual seeking to be employed or authorised as a financial adviser or mortgage broker.
The proposed obligations include taking reasonable steps to obtain a reference, seeking consent of prospective hires, requesting a reference and additional requests for a reference from the same licensee.
Licensees who contravene the obligations to comply with the protocol will be subject to a civil penalty, and ASIC may also take administrative action such suspension or cancellation of licence for non-compliance.
It has also prepared a draft information sheet to help licensees understand their reference checking and information sharing obligations.
Closing date for submissions is January 29.
Click here for the consultation paper.