ASIC reference checking and information sharing protocol

This information sheet (INFO 257) is for Australian financial services (AFS) licensees and Australian credit licensees (collectively 'licensees'):

  • that employ or authorise representatives to act as financial advisers or mortgage brokers on their behalf, and/or
  • whose employees or representatives move into financial advice or mortgage broking roles with other licensees.

From 1 October 2021, licensees must comply, as an obligation under their licence, with the ASIC Reference checking and information sharing protocol set out in ASIC Corporations and Credit (Reference Checking and Information Sharing Protocol) Instrument 2021/429 (ASIC protocol).

The ASIC protocol is made under section 912A of the Corporations Act 2001 (Corporations Act) and section 47 of the National Consumer Credit Protection Act 2009 (National Credit Act).

The ASIC protocol sets out obligations that apply to you as a licensee. It is intended to promote better information sharing about the performance history of prospective financial advisers and mortgage brokers.

This information sheet explains:

Who the ASIC protocol applies to

The ASIC protocol applies to:

  • a 'recruiting licensee' – that is, a licensee that is considering employing or authorising a prospective representative as a financial adviser or mortgage broker, and
  • a 'referee licensee' – that is, a prospective representative's current and/or former licensee(s) in the last five years from whom a reference is sought.

Note: A financial adviser is a person who provides personal advice to retail clients about relevant financial products. 'Relevant financial products' are financial products other than basic banking products, general insurance products, consumer credit insurance, or a combination of any of these products.

A 'prospective representative' includes:

  • a current or former representative of a referee licensee who has engaged in financial advice or mortgage broking activity for the referee licensee and is seeking to act in the same capacity for a recruiting licensee
  • a current or former representative of a referee licensee who has engaged in other activities for the referee licensee (e.g. general customer service, para-planning, collections, bank-teller activities) and is seeking to become a financial adviser or mortgage broker
  • a current or former financial adviser representative of a referee licensee who is seeking to become a mortgage broker representative
  • a current or former mortgage broker representative of a referee licensee who is seeking to become a financial adviser representative, and
  • a licensee in their own right who is seeking to become a financial adviser or mortgage broker representative.

The ASIC protocol requires a recruiting licensee to request a reference about the prospective representative from the referee licensee(s).

The referee licensee(s) must then share information with the recruiting licensee about the prospective representative by giving a reference.

Note 1: 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 their conduct as a licensee.

Note 2: Where the recruiting licensee and referee licensee are the same licensee, the requirements of the ASIC protocol do not apply.

Reference checking and background checks

Reference checking is one part of the screening process that licensees should undertake when deciding whether to employ or authorise a prospective representative as a financial adviser or mortgage broker.

Licensees are subject to general conduct obligations which include taking steps to ensure that their representatives comply with financial services laws or credit legislation. ASIC expects that these steps will include undertaking appropriate background checks beyond reference checking before authorising new representatives.

Note: Regulatory Guide 104 AFS licensing: Meeting the general conduct obligations (RG 104) and Regulatory Guide 205 Credit licensing: General conduct obligations (RG 205) contain examples of appropriate background checks (e.g. referee reports, searches of ASIC's banned and disqualified register and police checks).

Recruiting licensee must take reasonable steps

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 a prospective representative.

What are 'reasonable steps'?

'Reasonable steps' include:

Note: 'Reasonableness' in the context of 'reasonable steps' has the general law meaning. If a recruiting licensee has taken the steps required by the ASIC protocol but does not receive a reference, they should determine whether the steps they have taken to request a reference are reasonable. To determine whether their steps are reasonable, the recruiting licensee should take into account the facts and circumstances of the situation – for example, whether they have confirmed that their request was in fact received and/or have taken any steps to follow up with the referee licensee.

If consent or a reference is refused

If a prospective representative does not give you written consent to request a reference, you will not be able to request a reference from their referee licensee(s) under the ASIC protocol.

The prospective representative can also withdraw their consent at any time. Unless it is withdrawn earlier, a consent will cease 12 months after it is given: see Withdrawal and ceasing of consent.

While the ASIC protocol does not prohibit you employing or authorising a prospective representative in these circumstances, you will need to consider, and be able to demonstrate that you complied with, your general conduct obligations as a licensee if you decide to employ or authorise the prospective representative.

The ASIC protocol also does not prohibit you employing or authorising a prospective representative if you have taken reasonable steps and a referee licensee fails to comply with their obligation to give you a reference, or if you receive a reference that contains adverse information about a prospective representative. In these circumstances, you will similarly need to consider, and be able to demonstrate that you complied with, your general conduct obligations if you decide to employ or authorise the prospective representative.

For example, you will need to ensure that the prospective representative is adequately trained, is competent and complies with relevant legislation. This means you may need to do additional background checks or assessments before employing or authorising them, as well as additional monitoring and supervision after they are employed or authorised.

Note: RG 104 and RG 205 provide guidance on licensee obligations relating to monitoring and supervising representatives.

Who is a referee licensee?

Referee licensees are the current and former licensees of a prospective representative in the last five years from whom a reference is sought. As a recruiting licensee, you need to obtain references from the licensees described in Table 1 as the minimum requirement.

Table 1: Licensees from whom a reference must be sought

If a prospective representative…

a reference must be sought from…

is currently employed or authorised by a licensee (current licensee)

the current licensee(s)

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 prospective representative was a representative

is not currently employed

the most recent former licensee (and, if the prospective representative was with that licensee for less than 12 months, the next most recent former licensee (if any) of which the prospective representative was a representative) in the past five years

is a licensee

that licensee

You may also obtain references from additional former licensees that employed or authorised the prospective representative in the past five years. For example, you may want to know about any systemic issues relating to a prospective representative, including repeated conduct or performance issues that demonstrate the prospective representative has not responded to remedial action.

This information may only come to light from references given by a prospective representative's other former licensees. Other former licensees, who employed or authorised the prospective representative in the last five years and who receive a request for a reference from you under the ASIC protocol, will be obliged to give a reference in relation to a prospective representative's conduct for the five years before the reference is given.

Note: A recruiting licensee is not required to obtain a reference where a prospective representative is not employed or authorised by a current licensee, and the most recent former licensee that employed or authorised the prospective representative for 12 months or more no longer holds a licence. In these circumstances, the recruiting licensee should consider obtaining a reference(s) under the ASIC protocol from any other former licensee(s) that the prospective representative was employed or authorised by in the past five years.

When to obtain a reference

You have some flexibility about when a reference is to be obtained. For example, in consultation with a prospective representative, this may be:

  • at the beginning of the recruitment decision-making process
  • at the end of the recruitment decision-making process, or
  • if you are making an offer of employment or authorisation subject to satisfactory reference checking – before the prospective representative starts in their new role.

Note: See Section 2 of Reference checking in the financial services industry issued by ASIC and Standards Australia in October 2007 (Standards Australia handbook) for guidance on the timing of reference requests.

Sub-authorisation

Obligations under the ASIC protocol also apply where a corporate representative, with a licensee's consent, sub-authorises an individual under section 916B of the Corporations Act or section 65 of the National Credit Act to provide personal advice about relevant financial products or mortgage broking services.

Recruiting licensees must take reasonable steps to conduct reference checking in accordance with the ASIC protocol about each sub-authorised individual. You may decide what arrangements to put in place to ensure you comply with the ASIC protocol in such situations, since the protocol allows licensees to authorise agents to meet their responsibilities.

Recruiting licensee must seek consent

Your obligations as a recruiting licensee are set out in section 7 of the ASIC protocol.

Under the ASIC protocol, personal information about a prospective representative can only be shared with the consent of the prospective representative.

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

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 1988 (Privacy Act).

Under the Australian Privacy Principles (APP) guidelines (July 2019), 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 ASIC protocol must only be used, disclosed and stored for the purpose of:

  • considering a prospective representative’s suitability for employment or authorisation, and
  • complying with the general conduct obligations of a licensee.

Also, if you are an APP entity, you will need to comply with APP 5 by notifying the prospective representative about the collection of their personal information.

Template consent form

ASIC has provided a template consent form for you to use when complying with the ASIC protocol: see Schedule 1 to the protocol.

Withdrawal and ceasing of consent

A prospective representative who has previously given consent may withdraw their consent in writing (including by email) to you at any time.

If a prospective representative withdraws their consent, you cannot rely on their past consent for any future use or disclosure of their personal information. Where consent is withdrawn and the referee licensee(s) has not yet given a reference or update, you must also provide written notice to the referee licensee(s) of that withdrawal.

Unless withdrawn earlier, a consent will cease 12 months after it is given.

Note: The APP guidelines (July 2019) provide further information on withdrawing consent.

Recruiting licensee must request a reference

Your obligations as a recruiting licensee are set out in section 8 of the ASIC protocol.

If you obtain written consent from a prospective representative, you must ask the referee licensee(s) specified in Table 1 in writing to answer the questions in the template reference request about the prospective representative. You may, in the same manner, also obtain references from additional former licensees that employed or authorised the prospective representative in the past five years.

You must include a copy of the prospective representative's completed consent with your reference request.

You may make minor amendments to the format of the template reference request, as long as your amended request includes all the information required by the questions in the template reference request. You must not amend or alter any of the questions.

Requesting a clarification or update from a referee licensee

You may request a clarification or update from a referee licensee before deciding whether to employ or authorise a prospective representative, as you may want the referee licensee to clarify or give further details about information they originally gave you in a reference.

For example, an unresolved inquiry or investigation may be in progress for the prospective representative at the time the initial reference was given. You may wish to defer your decision about whether to employ or authorise the prospective representative and seek an update on the unresolved matter at a later stage.

If you make an additional request for a referee licensee to clarify or give further details about information they originally gave you in a reference, your request must be made in writing. However, you do not need to make the request in the form of the template reference request.

Any requests for clarifications or updates and responses to such requests form part of the records required to be kept under the ASIC protocol.

Requesting information outside the ASIC protocol

The template reference request asks a prescribed set of questions to give you an overview of the prospective representative’s conduct and performance history.

You may also want to request information about a prospective representative that is additional to the template reference request to help you in making a recruitment decision (e.g. background checking information as part of the wider screening process and other information from the Standards Australia handbook).

Nothing in the ASIC protocol limits or prevents you from requesting additional information from a referee licensee(s), as long as the additional information you request does not reduce the scope of the template reference request.

However, if you request information from a referee licensee about a prospective representative that is additional to the questions asked in the template reference request, the referee licensee is not obliged to share it with you under the ASIC protocol.

The defence of qualified privilege does not apply to any information that a referee licensee shares with you outside the ASIC protocol (i.e. information that is additional to the information provided in response to the template reference request).

We expect you to ensure that you comply with the Australian Privacy Principles in relation to any additional information you seek from a referee licensee. This includes:

  • seeking consent from a prospective representative to ask for any additional information and identifying the purpose for which it is being sought
  • giving a copy of the completed consent to the referee licensee(s), and
  • explaining to the referee licensee(s) why the additional information is being requested.

Referee licensee must give a reference

Your obligations as a referee licensee are set out in section 9 of the ASIC protocol.

You must respond in writing to a recruiting licensee’s request for a reference within 10 business days, unless both of you agree to a longer period (up to a maximum of 30 business days).

Note: You must not give a recruiting licensee a reference if the recruiting licensee has not given you a copy of the written consent of the prospective representative or if the licensee has given you written notice that the prospective representative has withdrawn their consent.

You must give a written reference to the recruiting licensee that includes all the information you are aware of and reasonably consider to be relevant to answer the template reference request.

Your response should be complete, accurate and based on documented facts that have been verified. Information given in a reference should be objective and relevant to the role and the information required by the template reference request.

You should give information that is:

  • factual – subjective information or opinions should be avoided and the information should be able to be substantiated, and
  • current and complete – it should accurately address current circumstances and historical performance.

If you are unable to answer any of the questions in the template reference request, you must explain in writing to the recruiting licensee why you cannot answer them.

You do not need to give additional information requested by a referee licensee that is not covered by the template reference request.

In addition, you only need to give information about the conduct of the prospective representative that occurred up to five years before you give the reference to the recruiting licensee.

Although you are not prohibited from sharing information with a recruiting licensee about the conduct of a prospective representative that occurred more than five years before the reference is given, or that goes beyond the template reference request, the defence of qualified privilege does not apply to such information that is shared outside the obligations of the ASIC protocol.

Defence of qualified privilege

To enable licensees to share information honestly and frankly, the defence of qualified privilege applies when you share information in accordance with the ASIC protocol. The defence of qualified privilege allows open communication in certain relationships without the risk of defamation action.

This defence applies if you give information about a prospective representative who is currently, or was previously, your representative because you are obliged to do so under section 9 of the ASIC protocol. It does not apply to any information you share that you are not obliged to give (e.g. information about conduct that occurred more than five years ago or information that is additional to the template reference request).

Also, you are not liable for any action based on breach of confidence relating to your obligation to share information under the ASIC protocol.

Template reference request

The template reference request set out in Schedule 2 and Schedule 3 to the ASIC protocol asks for information about a prospective representative in the past five years. Schedule 2 applies to reference requests for all prospective representatives, except where the prospective representative is a licensee in their own right (in which case Schedule 3 applies).

Table 2 gives an overview of the questions asked in the template reference request and gives general guidance on interpreting and answering the questions.

To assist licensees, we have prepared:

The examples have been annotated to help licensees understand the requirements in Schedule 2.

Table 2: Overview of template reference request in Schedule 2 to the ASIC protocol

Questions

Overview

General guidance

1. Background information

These questions ask who completed the reference, help identify the prospective representative and seek details about their previous role and responsibilities.

Note: Schedule 3 to the ASIC protocol includes similar questions about a prospective representative's background where they are a licensee.

Question 1(d) asks you to provide the ASIC reference number (if applicable) for the prospective representative. An ASIC reference number includes an authorised representative number or credit representative number.

2. Compliance audits

This question asks about the results/outcomes of compliance audit(s) you have conducted for the prospective representative in relation to their financial advice or mortgage broking activity.

Note: Schedule 3 to the ASIC protocol includes a similar question about compliance audits conducted on a prospective representative's activities as a licensee.

Question 2 asks you to provide the date(s) of the compliance audit(s) and brief descriptions of the results/outcomes and any remedial action.

In your response, indicate whether the results/outcomes were about non-compliance with financial services laws or credit legislation, and/or non-compliance with licensee processes.

'Remedial action' includes:

  • additional training
  • increased monitoring and supervision
  • consequence management (including performance management, financial consequences or formal warnings)
  • suspension of authorisation
  • corrective disclosure to a client, or
  • compensation to a client either as a financial payment or any non-financial remedy.

Note: A ‘compliance audit’ means an audit or review of the prospective representative’s compliance with financial services laws or credit legislation, and the licensee's policies and procedures. It is conducted by or on behalf of the licensee, as part of the licensee’s monitoring and supervision obligations: see section 912A(1)(ca) and (f) of the Corporations Act and section 47(1)(e) and (g) of the National Credit Act.

3. Conduct of a prospective representative

These questions ask about breach reports made to ASIC by you as a referee licensee where the breaches were caused or contributed to by the prospective representative in any capacity (not just financial advice or mortgage broking), and other conduct-related matters.

Note: Schedule 3 to the ASIC protocol includes similar questions about the conduct of a prospective representative as a licensee.

Question 3(a) asks whether you reported a breach to ASIC (under former section 912D or section 912DAA of the Corporations Act or section 50B of the National Credit Act) concerning the prospective representative.

If you indicated that you reported any breaches at question 3(a), you will need to provide details about the date, type and nature of any reported breaches. This must include details of any remedial action.

Question 3(c) asks you about the prospective representative's involvement in:

  • dishonesty
  • unprofessional conduct
  • conduct justifying instant dismissal or immediate termination of representative status
  • refusal or deliberate non-compliance in relation to financial services laws or credit legislation
  • gross incompetence or gross negligence, or
  • a breach of the Financial Planners and Advisers Code of Ethics.

The conduct need not amount to a contravention of the law for you to refer to it in your response to the template reference request.

Note: For the purposes of this question, 'unprofessional conduct' includes:

  • improper conduct affecting the representative's professional character, indicating a failure to understand or practise honesty or fair dealing with retail clients or the public
  • unsatisfactory professional conduct that involves a substantial or consistent failure to reach reasonable standards of competence and diligence, and
  • conduct which is, or could reasonably be considered likely to be, prejudicial to the interests of an AFS licensee or a credit licensee or retail clients.

If you indicated that the prospective representative has been involved in any of the conduct listed in question 3(c), you will need to provide a brief summary of the details. This must include relevant information about internal assessments, external notifications or complaints against the representative in connection with the provision of financial services or engaging in credit activities, and any remedial action.

4. Unresolved matters

These questions ask about any unresolved inquiries or investigations in progress for the prospective representative at the time the reference is given.

Note: Schedule 3 to the ASIC protocol includes questions about any unresolved inquiries or investigations relating to a prospective representative's conduct as a licensee.

If you indicated that there is an unresolved matter, you will need to provide a brief description of the nature of the circumstances that triggered the inquiry/investigation (e.g. breach, complaint, compliance audit, external notification, internal assessment/review or other circumstance). You will also need to provide details of the progress and status of the inquiry/investigation.

Note: 'Unresolved matters' relate to inquiries or investigations resulting from a prospective representative's action or inaction (rather than matters relating to a licensee's standard review processes, such as an employee exit review).

Related obligations

Your other obligations as a recruiting licensee or referee licensee are set out in sections 10–14 of the ASIC protocol.

Agents acting on behalf of licensees

You may authorise an agent to collect, use, disclose and store personal information on your behalf in relation to a prospective representative for the purposes of reference checking and information sharing in accordance with the ASIC protocol.

In these circumstances, you are responsible for the acts or omissions of your agent in relation to the ASIC protocol.

Use of information

Information that you collect about a prospective representative under the ASIC protocol must only be collected, used, disclosed or stored for the purpose of considering the prospective representative's suitability for employment or authorisation in relation to:

  • complying with the ASIC protocol, and
  • complying with the general conduct obligations of a licensee, which include taking steps to ensure that a licensee’s representatives comply with financial services laws or credit legislation and ensuring that representatives are adequately trained and competent to provide financial services or credit activities.

Information must not be collected, used, disclosed or stored for a purpose other than that for which it was collected – unless the prospective representative has consented to that use or disclosure, or another exception under the Privacy Act applies.

No arrangements or agreements

You must not enter into any arrangements or agreements with any individual that limit your ability to collect, use, disclose and store information under the ASIC protocol.

Contact for reference checking and information sharing

You must have adequate arrangements in place for a recruiting licensee to identify how to contact you for reference checking and information sharing purposes.

You may wish to make this information publicly available on your website. If you do not have a website, you will need to have other arrangements to ensure that a recruiting licensee can readily identify how to contact you.

For example, this could be through standard arrangements when someone phones your principal public contact number or through your industry association.

Record keeping

You must keep accurate and complete written records for five years demonstrating your compliance with the ASIC protocol. The types of records you must keep include:

  • consents given, requested, refused, withdrawn or ceased
  • references requested by a recruiting licensee (including records of the number of attempts to request a reference and extensions agreed between you and the referee licensee)
  • references given and received
  • requests to clarify or update information contained in a reference, and responses to these requests
  • agreements with agents relating to the ASIC protocol
  • policies and processes for handling personal information, and
  • complaints received about the reference checking process.

Keeping these records will help you comply with the ASIC protocol. ASIC will also be able to monitor whether you are undertaking reference checking in a timely, efficient and compliant manner.

Providing copies of references

The ASIC protocol does not require a recruiting licensee or referee licensee to give a prospective representative a copy of a reference. However, a prospective representative may be able to obtain a copy of a reference given under the ASIC protocol under APP 12: see APP guidelines, Chapter 12 (July 2019). In certain circumstances, the handling of records relating to current and former employment relationships is exempt from the Australian Privacy Principles under the employee records exemption.

A referee licensee may voluntarily provide a prospective representative with a copy of a reference they have given to a recruiting licensee under the ASIC protocol.

What happens if I don't comply?

ASIC can take enforcement action against you if you contravene your obligation to comply with the ASIC protocol (e.g. if you fail to give written references to recruiting licensees as a referee licensee).

A civil penalty applies for non-compliance with the ASIC protocol. We may also take administrative action if you do not comply with the ASIC protocol, which could include suspending or cancelling your licence, or imposing additional licence conditions.

Note: See Information Sheet 151 ASIC's approach to enforcement (INFO 151) explaining how we approach our enforcement role and www.asic.gov.au/penalties for information about penalties, including the value of a penalty unit.

What action can a prospective representative take?

Where a prospective representative considers that a referee licensee has not acted in accordance with the ASIC protocol, they may:

  • directly approach a referee licensee to seek to resolve their concern
  • make a complaint to ASIC about a suspected breach of the ASIC protocol, and/or
  • make a complaint to the Office of the Australian Information Commissioner for disputes about personal information held by an APP entity.

Checklists

Tables 3 and 4 are checklists of questions you should ask yourself when requesting a reference or receiving a request for a reference under the ASIC protocol.

The checklists prompt you as either a recruiting licensee or referee licensee to take certain steps to help you comply with your reference checking and information sharing obligations – they do not provide a complete list of the obligations that apply to licensees under the ASIC protocol.

Table 3: Checklist for recruiting licensees

Obligation

Questions to ask

Recruiting licensee must take reasonable steps

Are you considering employing or authorising an individual as a financial adviser or mortgage broker (prospective representative) who is currently or was formerly a representative of an AFS licensee or credit licensee at any time in the past five years?

Recruiting licensee must seek consent

Have you sought written consent from the prospective representative to request a reference from the referee licensee(s) using the template consent form?

If the prospective representative withdraws their consent, or the consent ceases, before the referee licensee(s) has given a reference, have you notified the referee licensee(s) in writing of the withdrawal?

Recruiting licensee must request a reference

Where written consent has been given by the prospective representative, have you requested, in writing, a reference from the referee licensee(s) using the template reference request?

Have you given a copy of the completed consent form to the referee licensee(s) when making the reference request?

Recruiting and referee licensee(s) must keep records demonstrating compliance

Have you kept records demonstrating your compliance with the ASIC protocol?

Table 4: Checklist for referee licensees

Obligation

Questions to ask

Recruiting licensee must seek consent and request a reference

Has the recruiting licensee given you a copy of the template consent form completed by the prospective representative consenting to the reference check?

Referee licensee must give a reference

Will you be able to respond to the recruiting licensee's request for a written reference within 10 business days (or have you otherwise agreed with the recruiting licensee to a longer period, up to 30 business days)?

Do you have evidence to substantiate your answers in the template reference request?

Have you answered all the questions in the template reference request? If not, have you given a written explanation to the recruiting licensee about why any information is missing?

Recruiting and referee licensee(s) must keep records demonstrating compliance

Have you kept records demonstrating your compliance with the ASIC protocol?

Where can I get more information?

Important notice

Please note that this information sheet is a summary giving you basic information about a particular topic. It does not cover the whole of the relevant law on that topic, and it is not a substitute for professional advice. You should also note that because this information sheet avoids legal language wherever possible, it might include some generalisations about the application of the law. Some provisions of the law referred to have exceptions or important qualifications. In most cases your particular circumstances must be taken into account when determining how the law applies to you.

This is Information Sheet 257 (INFO 257), issued in July 2021.

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Last updated: 20/07/2021 12:00