Posted July 22, 2021
Posted By Meghann Cannon
ASIC releases reference checking protocol ahead of 1 October roll-out
Prepared by Jodi Ainsworth.
The new reference checking requirements, which will come into effect from 1 October 2021, have recently been finalised and released by ASIC in a Reference Checking and Information Sharing Protocol (the Protocol).
As we reported previously, the new requirements are aimed at improving communication between AFS licensees about the background of prospective employees so as to address the problem of so-called ‘rolling bad apple’ advisers. ASIC had released a draft of the Protocol, which has now been revised following a consultation period.
What you need to know
Here are the key points, which we have updated where appropriate to reflect the final form of the Protocol:
- New specific licence requirement: Licensees will have a specific requirement on their AFS licence to comply with the Protocol.
- For retail personal advice or credit assistance: The Protocol will apply to the reference checking of representatives who will provide personal advice to retail clients or credit assistance.
- Reasonable steps are to be taken to obtain references: The recruiting licensee must take reasonable steps in requesting 1) a prospective representative’s written consent to the reference, and 2) the reference from the representative’s “referee licensee”. If a request is made but a reference is not received, further steps may be considered “reasonable”, e.g. confirming receipt of the request and following up with the referee licensee.
- Written consent can be withheld by the prospective representative: If consent is withheld, a reference cannot be requested. In this situation, the recruiting licensee will need to consider its general conduct obligations in deciding whether to recruit the representative.
- “Referee licensees” will generally be the representative’s current or most recent licensee: This is the case except where the representative has been employed/authorised at the licensee for less than 12 months. For prospective representatives who are licensees, the recruiting licensee will need to ask that person for a reference about themselves (with a modified template reference request form). Additionally, a recruiting licensee can choose to request references covering the prospective licensee’s conduct over 5 years.
- Reference consent and request forms are prescribed: These forms have now been released by ASIC and should be used to comply with the Protocol. ASIC has also provided completed forms as examples. Recruiting licensees can choose to seek additional information about prospective representatives beyond what is in these forms, but the referee licensee is not required to provide this information.
- Requests for clarification: Such requests can be made by a recruiting licensee in writing, but do not need to be in the template form.
- No obligation or prohibition to provide a copy of the reference to the prospective representative: Whilst there is no obligation, privacy laws may enable the prospective representative to request personal information from a reference in some circumstances.
- 10-day mandated response time: Referee licensees must comply with a reference request within 10 business days unless an extension is agreed (up to a maximum of 30 business days).
- Contact for reference checking purposes: There will be no ASIC-run central database of licensee contact points, but licensees should have adequate arrangements in place to ensure recruiting licensees can readily identify how to contact them.
- Records to demonstrate compliance with the Protocol: These must be kept for 5 years and must include records of any complaints made in relation to the Protocol.
- Protection from defamation and breach of confidentiality: To protect licensees from the threat of defamation and encourage sharing of information, a limited qualified privilege will apply in relation to information which a licensee is obliged to give under the Protocol about a current or former representative. Also, licensees will not be liable for a breach of confidence in these circumstances.
- Penalties for failure to comply: If they fail to comply, licensees may be subject to a civil penalty and risk having their licence suspended, revoked or made subject to additional conditions.
How Kit Legal will help you
For our DCP clients, we are reviewing your template policies and checklists, and will update them to reflect the Protocol’s requirements ahead of 1 October. We will keep you updated on this process.
In the meantime, ASIC expects licensees to already be undertaking background and reference checks as part of their general obligations, and these checks should continue.
You can read ASIC’s press release about the Protocol here: ASIC reference checking protocol