You are currently viewing New ASIC Law Reforms for the Financial Services Industry

At the start of October, we will see several law reforms commence, all of these will have a direct impact on credit licensees including, credit providers (lenders) and credit assistance providers (brokers).

Most of these have been covered in past Better Outcomes newsletters and our retained compliance support clients have recently received a copy of a suggested, new (RG271 compliant) Dispute Resolution policy as part of their ACL Obligations.

All the following law reforms to the financial services industry have been in the pipeline for at least 2 years so this shouldn’t be any surprise to you, but we wanted to first make everyone aware of the impending dates of implementation and secondly, provide some high level and practical guidance to how this may impact you and your credit licensee.

Reforms coming October 2021 (incl. link to actual legislative detail):

In addition to those mentioned above with a direct impact on brokers and lenders, there is also some new legislation regarding Anti-Hawking Laws that impact AFSL holders.  

ASIC recognises the significance of these changes to the industry and has acknowledged a period of transition where the industry finalises the implementation of additional compliance measures.They have publicly stated that they will take a reasonable approach in the early stages of these reforms provided industry participants are using their best efforts to comply.

Now, our view at SalesKey is that at least some of these changes could have been deferred given the challenges we are all facing in business today.  However, they are here now, and we stress the importance of adhering to ASIC’s statement of applying “best efforts”.

We encourage everyone, and especially owners and managers of ACL entities, to conduct their own research and to seek the advice and assistance of their aggregator and/or legal adviser.  We trust the following input from us and the support to our retained compliance support partners will also add value also.

  1. Reference Checking & Information Sharing Requirements:

    From 1 October, new reference checking protocols apply to all AFSL and ACL holders.  The intent of ASIC’s new protocols is to identify any past misconduct by a person within the financial advice or mortgage broking industry prior to moving employment or authorisation under a new licensee.

    It applies to ACL and AFSL holders who are considering the employment or authorisation of a new financial adviser or mortgage broker.  This person is known as the ‘recruiting licensee’.  An aggregator may also be a ‘recruiting licensee’ but only if the prospective person is to act directly under the Aggregator’s credit licence.

    Recruiting licensees must firstly seek and obtain written consent from the prospective representative and if that is provided, they must request a reference from the current or former licensee (during the past 5 years) of this prospect. There is no need to obtain a reference from all previous licensees, however, if the duration in which the prospect operating under was < 12 months, other references must be gained where applicable.

    The recruiting licensee must take reasonable steps to obtain this reference before recruitment or authorisation can occur, including: 

    1. Seeking and obtaining written consent from the prospective representative using the ASIC protocol template (or something substantially similar), and 
    2. If consent is provided, request a reference in accordance with the defined ASIC protocol.

    The previous licensee, from whom the reference is being sought, is known as the ‘referrer licensee’. Upon receipt of such a request, a response must be provided within 10 business days.

    There is a qualified legal privilege to the referrer licensee, meaning that the referee is not exposed to claims such as defamation so long as the response is made in good faith.

    If consent isn’t provided or a reference not provided, the ASIC protocol does not prohibit a recruiting licensee from employing or authorising a prospective representative in these circumstances. However, it’s important that the recruiting licensee can demonstrate that they complied with their General Conduct obligations and related internal processes and checks when onboarding new staff/ACRs.

  2. signing compliance documents for ASIC

  3. Design and Distribution Obligations:

    DDOs place a specific responsibility upon issuers (ie. Lender or Insurer) and distributors (Aggregator or Broker) to design and distribute financial products with a customer-centric approach. 

    Relevant financial products covered by DDOs include:

    • Products of which a PDS must be prepared.
    • Securities of which disclosure documents must be prepared.
    • NCCP regulated credit products.

    The main onus is on the Issuer (Lender/Insurer). The major focus points for them are:

    • Each financial product must have a defined Target Market Definition (TMD) which is published and provided to all Distributors.
    • The design of the product must then be consistent with the likely objectives, financial situation and needs of intended consumer targets.
    • Issuers must monitor consumer outcomes to ensure they remain in line with the objectives and needs of the intended target market.

    Additionally, there is a joint obligation upon both issuers and distributors (ie. brokers) to take ‘reasonable steps’ to enhance the reach of products to the intended (and specified) target market.

    Brokers and Aggregators must distribute the product consistently with the TMD provided to them by the Lender/Insurer and report any identified issues and inconsistencies to the Lender/Insurer when noticed, or upon request.

  4. Internal Dispute Resolution:

    For credit licensees who provide credit assistance in relation to residential mortgages, this is the first time they will be obliged to report certain breaches of the law to ASIC and brings them in line with Financial Advisers. The following is a table from the ASIC’s RG78, guiding as to the type of reportable situations:

    Type of Situation:

    Breaches or ‘likely breaches’ of core obligations that are significant. These situations include: 
    • any breach of a ‘core obligation’ where the breach is significant, and
    • any ‘likely breach’ of a ‘core obligation’ where the licensee or a representative of the licensee is no longer able to comply with a core obligation and the breach, if it occurs, will be significant.
    • Examples: RG 78.34–RG 78.49

    Investigations into breaches or likely breaches of core obligations that are significant. These situations include:
    • investigations that continue for more than 30 days into whether there is a breach or likely breach of a core obligation that is significant, and 
    • the outcome of such an investigation if it discloses there is no breach or likely breach of a core obligation that is significant.
    • Examples: RG 78.50–RG 78.64

    Additional reportable situation. These situations include:
    • conduct constituting gross negligence,
    • conduct constituting serious fraud, and 
    • other circumstances prescribed by the regulations.
    • Examples: RG 78.65–RG 78.69

    Reportable situations about other licensees. These situations include:
    • These situations relate to conduct in certain prescribed circumstances of financial advisers and mortgage brokers of other licensees.
    • Examples: RG 78.70–RG 78.84

    Licensees will be required to lodge breach reports within 30 calendar days after the licensee first knows that there are reasonable grounds to believe a reportable situation has arisen.  This is to be done via an approved form available in the ASIC Regulatory Portal.

  5. Compliance Breach reporting:

    For credit licensees who provide credit assistance in relation to residential mortgages, this is the first time they will be obliged to report certain breaches of the law to ASIC and brings them in line with Financial Advisers.  The following is a table from the ASIC’s RG78, providing guidance as to the type of reportable situations:

    As of 5 October 2021, ASIC’s RG271 replaces RG165.  This Regulatory Guide provides guidance as to the updated requirements placed on financial institutions, including ACL holders (brokers and lenders), for complaint handling and how to address it internally.   

    The overall requirements to handle complaints are not significantly different for ACLs, but there are some details to be incorporated into both INTERNAL procedures and EXTERNALLY published policies.  

    Some of the main points of emphasis are:

    • Internal Dispute Resolution (IDR) obligations apply to any complaints lodged by consumers, primary producers, or small businesses of <100 employees.  Ie. It is not just a regulated credit obligation.
    • An onus is placed on senior management to ensure a culture of ‘constructive compliant handling’ is implemented, plus strong internal monitoring and reporting process.
    • All team members must be regularly informed of how complaints are handled internally.
    • There is now some explicitly defined content and structure re: IDR responses – see RG271.53-54.
    • Acknowledgement of a complaint must be made within 24 hours/one business day and via the same method in which the complaint was received, or via a preferred method advised by the complainant (wherever practical to do so).
    • A financial firm must provide an IDR response to a complainant no later than 30 calendar days after receiving the complaint. However, in some cases a different timeframe applies – see RG271.58 (ie. Credit provider complaints re: financial hardship must be responded to within 21 days).
    • IDR processed must be documented.
    • It’s required to have reference to the complaints policy online and a hard copy upon request
  6. Deferred Sales Model for Add-On insurance products:

    The deferred sales model introduces a mandatory four-day pause between the sale of a principal product or service and the sale of add-on insurance.

    An Add-On Insurance product is broadly defined as one that is offered or sold to a consumer in connection with that person acquiring another product or service. It is sole by the same provider of this initial product or service, and it manages financial risk and/or a contract of insurance. For example, GAP Insurance as part of a motor loan.

    business meeting discussing compliance

    ASIC defines four (4) separate stages relevant to their new legislation and applies permitted conduct as follows:

    1. Stage One: Pre-deferral period

      This period starts when a customer indicates an intention to acquire a principal product or service and ends when the deferral period starts.  Although a principal or third-party provider may advertise and discuss an add-on insurance product during this period, it is prohibited from selling such a product.

    2. Stage Two: Deferral period

      This period commences when the customer commits to acquiring a principal product or service and receives the information in the prescribed manner and form for the potential Add On product.  The period extends for four days during which a principal or third-party provider cannot sell an add-on insurance product and cannot offer, request, or invite a customer to ask for, apply for, or purchase such a product (except in writing). The latter prohibition does not apply where the offer, request or invitation is made in response to contact initiated by the customer and relates only to the purpose of that contact.

    3. Stage Three: Post-deferral period

      This period starts at the end of the deferral period and ends six weeks after the start of the deferral period.  During this period, add-on insurance products can be sold and offers, requests and invitations to buy the product can be made only in writing, subject to the rules for customer-initiated contact.

      Brokers must comply with the above legislation and new processes, although the issuers of the Add On products (ie. Insurers) are working hard to have compliant processes which minimise chances of non-compliance when selling their products.  

      The following insurance products were made exempt from this legislation by ASIC earlier this year and applications for further exceptions continue.  We encourage all Brokers to speak with their various insurance providers to find out more.

      • home building insurance.
      • home and contents insurance. 
      • landlord insurance.
      • compulsory third party insurance for motor vehicles.
      • third-party property damage, fire, and theft insurance for motor vehicles.
      • comprehensive insurance for boats, motorcycles, motorhomes, caravans, and trucks.
      • insurance sold within superannuation (including group life insurance.
      • postage and delivery of consumer goods insurance.

      There’s obviously a lot to take in with these upcoming changes, but again we stress the importance of self-education and seeking support from your legal advisers and Aggregators.

    We founded SalesKey with an objective to share our knowledge of Finance, Lending, Finance Broking, and business management and in turn guide businesses through the maze of compliance requirements.  Whether it’s a review of your ACL Obligations, internal processes, NCCP adherence, sales maximisation, systems, or your organisational structure; we are well placed to help any participant within the Financial Services space.  

    If anyone reading this would like an obligation-free chat about the above legislative changes, ACL-related policies and procedures, credit licensing, File Auditing and/or an ACL/Business Health Check, please contact us.