ASIC’s Report 330 released on 13 March 2013 provides useful guidance for credit licensees supervising credit representatives.
ASIC’s review focussed on 18 licensees having 9,869 credit representatives, being approximately 40% of all credit representatives notified to ASIC at 1 October 2012.
The report can be viewed on the ASIC web-site under ‘Publications’. The key recommendations are summarised below, together with our comments.
Key matters to note are:
- licensees should have a record of the activities of the credit representatives (for example aggregators need an electronic copy of all the key documentation even for loans lodged ‘off panel’ so that they can produce documents on request);
- brokers must have their own credit policy and cannot just rely on lenders’ policies (this accords with the MFAA recommendations – for help see the MFAA website).
Recommendation 1: Compliance and training documents
Credit licensees' compliance and training documents should be specifically tailored to reflect the nature, scale and complexity of a licensee's particular business, rather than simply repeating the information contained in ASIC regulatory guides or in documents used by other entities with different business operations.
Recommendation 2: Ensuring that credit representatives remain eligible to be authorised
Credit licensees should have appropriate practices and procedures in place not only to ensure that their credit representatives are appropriately qualified initially to be appointed as a credit representative, but also to ensure that they remain appropriately qualified on an ongoing basis (eg through monitoring continuing professional development and membership of an approved EDR scheme).
Recommendation 3: Providing consumers with preliminary assessments
Credit licensees should have appropriate practices and procedures in place to be able to directly provide consumers with a copy of the preliminary assessment, if requested to do so, within the timeframe prescribed by legislation. [Comment: Credit representatives are agents of their licensee. When credit representatives do something, they do it on behalf of their licensee, even for example if broker reps lodge off deals off panel. It is essential in Gadens’ view that all relevant documents are lodged electronically with the licensee so that the licensee can respond to promptly to enquiries and comply with their legal obligations.]
Recommendation 4: Record-keeping - Volume and type of credit assistance
Credit licensees should be able to identify all instances of credit assistance provided by each of their credit representatives, including where credit is not ultimately provided, with best practice being able to also identify the volume of loans from each credit representative by other potential risk indicators (eg loan type or loan purpose).
Recommendation 5: Compliance reviews - General conduct principles
Credit licensees should have appropriate practices and procedures in place to undertake compliance reviews of their credit representatives. [Comment: The regularity and form of these reviews will depend on appropriate risk assessment practices. Gadens Compliance and Risk group can help you develop compliance programs and can even undertake those reviews for you – contact Murray Ludlow 02 9931 4846.]
Recommendation 6: Compliance reviews – Responsible lending principles
When reviewing credit representatives' compliance with the responsible lending obligations, credit licensees should assess the credit assistance provided against their own responsible lending policies, rather than only checking whether an application meets the credit provider's guidelines. [Comment: This aligns with the MFAA’s recommendation that brokers must have their own credit policy. More information about how to develop a credit policy is available of the MFAA’s website].
Recommendation 7: Compliance reviews – Incorporation of findings into training, compliance and risk management
Credit licensees should have processes in place not only to address specific compliance issues with individual credit representatives, but also to identify and address potential systemic compliance issues through regular updates to their training material, compliance plans and risk management systems.
Recommendation 8: Compliance reviews - Addressing any detriment to consumers
Credit licensees should have processes in place not only to address the causes of specific compliance issues with their credit representatives, but also to identify and rectify consumer detriment arising from those compliance issues.