Aggregators’ member contracts are important documents.  This report reviews the way members are appointed as credit representatives and discusses the need for a contract with accredited loan writers.  The report assumes that besides having a contract with the principal broker (usually a company), aggregators will accredit a number of loan writers associated with the principal broker.

How are accredited loan writers authorised to conduct credit activities?

A loan writer could personally hold an ACL.  If the loan writer does not hold an ACL, the loan writer may be:

  • a director or employee of an ACL holder and so is covered by the employer’s ACL;
  • a credit representative (CR) appointed directly by the aggregator;
  • a director or employee of a corporate CR who is sub-authorised by the employer;
  • a director or employee of a corporate CR who is directly appointed by the aggregator;
  • a contractor of a corporate CR who is directly appointed by the aggregator;
  • a contractor who is appointed by an ‘external’ ACL holder (ie an ACL holder who is not a member of the aggregation group).

Each of these scenarios triggers different requirements for the appointment.  These are discussed in detail in Annexure 1.

What about Broker Agreements?

There are two options.

  1. Aggregator contracts only with the ‘head broker’ Aggregator contracts only with the ‘head broker’ – B P/L shown in scenario 1.  If the aggregator directly appoints the CRs, there is a CR appointment, but no detailed Broker Agreement.  Rather, the aggregator relies on the Broker Agreement B P/L has with these people, and the obligations imposed on B P/L in the head Broker Agreement to ensure that B P/L’s brokers and other intermediaries comply with the head Broker Agreement.  However, often B P/L will only contract with the next company down the chain and not the individual broker.
  2. Aggregator enters ‘Sub-membership Agreements’. Because the aggregator is appointing CRs with whom it has no direct contractual relationship other than the appointment as CR, the aggregator enters a ‘Sub-membership Agreement’ with the CRs setting out details of the CR’s obligations.

What else should aggregators be doing when appointing members or credit representatives?

  1. Company search If the member is a company, conduct a company search to verify corporate existence and check who is authorised to sign on behalf of the company.  Depending on what the company search says, the company should sign by two directors, a director and a secretary, or a sole director and secretary.
  2. PPSR search If the member is a company, although not essential, it’s a good idea to conduct a search of the Personal Properties Securities Register (PPSR) to see if the company has granted any charges.  What used to be called a ‘Fixed and Floating Charge’ over all of a company’s assets which was registered at ASIC is now usually called a General Security Agreement, and is registered on the PPSR.  It will show up on the PPSR search as ‘ALLPAAP’ standing for ‘all property’.
  3. Credit authorisation search Check the ASIC website: Professional Registers to see if the person or company holds an ACL or has already been appointed as a credit representative.  If they have, you shouldn’t proceed with the appointment as a credit representative. 
  4. Review the actual appointment as credit representative If the member intends to operate as a credit representative of a third party licensee, in addition to verifying that the appointment of the company or person is recorded at ASIC, obtain a certified copy of the original appointment so that you can check that the CR is authorised to lodge deals to or through you as distinct from being limited to lodging deals to or through the licensee that appointed the CR.
  5. Other searches Consider conducting a bankruptcy and police search.  In any event, obtain a warranty from the CR that they are not disqualified from being appointed as a CR by you. Verify PI insurance. Verify EDR membership.  If and only if the CR is an employee and will be appointed by sub-authorisation, the CR can be covered by his or her employer’s membership
  6. Annual review At least annually, review the appointments by checking the ASIC records, EDR membership, and currency of PI. This document does not comprise legal advice and neither Gadens Lawyers nor the MFAA accept any responsibility for it.

ANNEXURE 1 – AUTHORISATION OF LOAN WRITERS TO CONDUCT ‘CREDIT ACTIVITIES’.

Member holds own ACL

When the member holds its own ACL, the situation is reasonably straightforward. 

  1. Aggregator (AG) contracts with B P/L who holds an ACL.  B P/Lemployees act as brokers under B P/L’s licence and EDRmembership.
  2. B P/L may sub contract with other ACL holders or with brokers who areappointed CRs by B P/L.

Member is a credit representative of the aggregator

When the member does not hold its own ACL, the situation becomes more complicated.  Eleven different quite common scenarios are listed below.  These scenarios are shown diagrammatically in Annexure 2.  It may assist following the descriptions below to refer to the diagram as you read.

Scenarios:

  1. Appointment of corporate member AG contracts with B P/L and AG appoints B P/L as a CR.
  2. Sub-authorisation of B P/L’s employees B P/L operates through B P/L’s employees.  These employees are sub-authorised by B P/L with the approval of AG.   The notification to ASIC must be effected using B P/L’s corporate key (not AG’s) even though the employees will be CRs of AG and even though ASIC’s externally searchable records do not indicate whether the CR is sub-authorised or directly appointed.  These sub-authorised employees are covered by B P/L’s EDR membership.
  3. Direct appointment of B P/L’s employees B P/L operates through B P/L’s employees.  These employees are directly appointed by AG.   The notification to ASIC must be effected using AG’s corporate key.  These sub-authorised employees are not covered by B P/L’s EDR membership, and must take out their own EDR membership.  (See the MFAA website’s:Credit representatives - how to appoint and COSL fees for details of cost differential between direct and sub-authorisation models.)
  4. Sub-authorisation of B P/L’s natural person contractors B P/L operates through natural person contractors.  These contractors are sub-authorised by B P/L with the approval of AG.   The notification to ASIC must be effected using B P/L’s corporate key (not AG’s) even though the employees will be CRs of AG and even though ASIC’s externally searchable records do not indicate whether the CR is sub-authorised or directly appointed.  These sub-authorised employees are not covered by B P/L’s EDR membership, and must take out their own EDR membership.
  5. Direct appointment of BP/L’snatural person contractors B P/L operates through natural person contractors.  These contractors are directly appointed by AG.  The notification to ASIC must be effected using AG’s corporate key.  These sub-authorised contractors are not covered by B P/L’s EDR membership, and must take out their own EDR membership. 
  6. Sub-authorisation of BP/L’scorporate contractors B P/L cannot sub-authorise a corporate contractor.  Only natural persons can be sub-authorised.
  7. Direct appointment of BP/L’scorporate contractors B P/L operates through corporate contractors.  These contractors are directly appointed by AG.   The notification to ASIC must be effected using AG’s corporate key.  These sub-authorised contractors are not covered by B P/L’s EDR membership, and must take out their own EDR membership. 
  8. Sub-authorisation of employees of corporate contractors The same rules apply as 2 above.  The corporate contractor (CC) operates through CC’s employees.  These employees are sub-authorised by CC with the approval of AG.   The notification to ASIC must be effected using CC’s corporate key (not AG’s) even though the employees will be CRs of AG and even though ASIC’s externally searchable records do not indicate whether the CR is sub-authorised or directly appointed.  These sub-authorised employees are covered by CC’s EDR membership.
  9. Direct appointment of employees of corporate contractors The same rules apply as 3 above.  CC operates through CC’s employees.  These employees are directly appointed by AG.   The notification to ASIC must be effected using AG’s corporate key.  These sub-authorised employees are not covered by CC’s EDR membership, and must take out their own EDR membership. 
  10. Sub-authorisation of CC’s natural person contractors The same rules apply as 4 above.  CC operates through natural person contractors.  These contractors are sub-authorised by CC with the approval of AG.   The notification to ASIC must be effected using CC’s corporate key (not AG’s) even though the employees will be CRs of AG and even though ASIC’s externally searchable records do not indicate whether the CR is sub-authorised or directly appointed.  These sub-authorised employees are not covered by CC’s EDR membership, and must take out their own EDR membership. 
  11. Direct appointment of CC’s natural person contractors The same rules apply as 5 above.  CC operates through natural person contractors.  These contractors are directly appointed by AG.   The notification to ASIC must be effected using AG’s corporate key.  These sub-authorised contractors are not covered by CC’s EDR membership, and must take out their own EDR membership.  These scenarios can flow down through further chains of sub-contracting, although the more common scenario is that B P/L effectively acts as a sub-aggregator and has a number of corporate or individual contractors.  Contractors often operate through a company as distinct from contracting directly to hopefully avoid employment issues and provide some tax planning flexibility.  Care must be exercised as the mere interposition of a company does not mean that employment does not exist and may not change the flow of taxable income to the individual.

Click here to view Annexure 2 - Authorisation of Credit Representative (Diagram)