financial Services
Assessment cover sheet
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Student details
Course name
Assessment name
Financial Services Legislation & Compliance Assessment
Surname
Given name
Address
Postcode
Phone
Phone (other)
Current occupation
Industry
Years in industry
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Checklist of attachments:
Financial Services Legislation & Compliance
Financial Services Legislation & Compliance
A2 © AAMC Training Group Assessment V3.3
Assessment V3.3 © AAMC Training Group A3
☐ Task 1 – Case study questions
☐ Task 2 – Workplace project
☐ Task 3 – Short answers/Activity
☐ Task 4 – Workplace project
☐ Task 5 – Activity
☐ Task 6 – Workplace project
☐ Task 7 – Research
☐ Task 8 – Research
☐ Task 9 – Short answers
Please indicate style of course undertaken:
☐ Face to face Trainer’s name: ☐ Correspondence ☐ Online
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FINANCIAL SERVICES LEGISLATION & COMPLIANCE ASSESSMENT
|
CREDIT TRANSFER You may be able to claim credit transfer for a unit/s of competency that you have previously completed with AAMC Training or another RTO. If you have been awarded a record of result or statement of attainment for any of the units detailed below then please go to the Credit Transfer tab in your Learning Centre and follow the prompts. This assessment relates to the following units of competency: · FNSINC401 Apply principles of professional practice to work in the financial services industry · FNSFMK505 Comply with legislation and industry codes of practice Please refer to AAMC Training’s full Recognition Policy for further details. |
PLEASE READ THESE IMPORTANT INSTRUCTIONS BEFORE COMMENCING YOUR ASSESSMENT:
Please note articles and resources used in questions below are for the purpose of training only and may be outdated but still acceptable to meet the requirements of the tasks.
In addition to fully reading and understanding the contents of the learner guide, you have been provided an FMB Assessment Toolkit. We urge you to fully read and understand both of these resources prior to commencing the following questions and case studies as they will assist you in successfully achieving an understanding of this module and thus a satisfactory result. Most of the tasks are related to the FMB Assessment Toolkit. You will also need to access some of the forms and templates in the Useful Resources section of your Members Area.
· Your answers to each of the tasks are to be typed into this document and uploaded.
· No assessment word count has been specified for some of the questions, although you are expected to provide good quality answers to each of the questions.
· At the time of going to print the web links in this document were current. If you find a broken link please research yourself and advise AAMC Training of the issue.
· Although some general discussion between students covering the assessment is allowed your responses to each of the questions must be an individual effort.
· PLEASE NOTE: AAMC Training only wants to see your own work. Please do not upload parts of the learning guide or instructions on how to complete. When this extra information is uploaded it presents unnecessary work for the assessors and in turn delays our assessment responses.
Task 1 – Case Study
As part of managing your professional development and maintaining currency, you read many industry articles. You received this following article from Industry Media and decided it might be a good one for yourself and the other finance brokers (authorised credit representatives) of DNZ, in order to understand the industry better.
The historic low interest rate of 1.5% which remained the same after nearly two years, is expected to increase “at some point,” according to Philip Lowe, Governor of the Reserve Bank of Australia (RBA). Economist Warwick McKibbin concurred stating that this has been shown by the local economic and political climate. The increase is predicted even in global standards as an effect of the rise of climate change policies, digital disruption, and the overall changing global economy.
Due to low inflation, lack of growth in wages, and job insecurity – the present interest rate has failed to catch up with the global interest rates. These in turn mean that household spending is not enough to push the economy forward.
While the RBA is able to influence most interest rates in the economy, and in turn manipulate the demand for borrowing, the banks are assumed to pass the cost on to borrowers. The banks endeavour to shoulder the costs of borrowing funds within their business before passing it on to borrowers via loan repayments.
As the RBA and banks determine the cash rate and interest rates, they do not solely govern the behaviour of the financial services industry.
While this is so, there is the call to prepare for the rate hikes. It is best for borrowers to sort out their finances ahead of time and be mindful of the industry’s climate, so that they are aware of interest rate movements. If it is possible, park spare cash in an offset account or use it for paying down the loan.
News Article Resources used to obtain the above information can be found at the following websites:
· https://www.afr.com/news/economy/monetary-policy/prepare-australians-for-rate-hikes-now-mckibbin-tells-rba-20180622-h11qcy
· http://www.abc.net.au/news/2018-07-03/very-high-chance-of-an-interest-rate-rise-next-month/9935456
· https://www.realestate.com.au/advice/how-to-survive-an-interest-rate-hike/
Case Study questions:
1. You have asked the finance brokers (ACR’s) in the DNZ business to consider the article above which will also help them to better explain to their clients and referrers about external impacts that may affect borrowing. Referring to the article above and the AAMC Training learner guide, identify a minimum of three external forces that could influence the move in interest rates and that also dictate the economic and political climate in relation to the financial services industry.
2. What are the two financial services sectors that are involved in influencing interest rate movements and how do they interrelate?
Task 2 – Workplace Project
1. Paul has asked you to write a staff memo to update everyone on the recent changes and impact of the Australian Financial Complaints Authority (AFCA) on organisational policy, guidelines and procedures.
Using the template below and considering the key points, write the office memo in less than 500 of your own words*.
Refer to the AFCA website https://www.afca.org.au/members to locate relevant information found under Members.
*MUST BE IN YOUR OWN WORDS
Dear colleagues,
ABOUT AFCA
*Who are AFCA and what are the benefits of AFCA membership?
LETTING YOUR CUSTOMERS KNOW
*What are the key points that you have to consider in communicating information about AFCA?
*What does the AFCA Code Compliance and monitoring team support and administer? (Found under Codes of Practice)
2. Paul Williams has asked you to update the DNZ Credit Guide with the correct wording about AFCA. What information should be available to consumers on both the website and in the credit guide? Reference: “Letting your customers know about AFCA”.
Task 3 – Short Answers/Activity
Read the following article and answer the relevant questions.
Positive credit reporting is now mandatory in Australia – but what does that actually mean?
The Government announced on 2 November 2017 that it would legislate for a mandatory comprehensive credit reporting regime. As of 1 July 2018, recording positive credit information on credit histories was made mandatory for all credit providers. This is intended to allow lenders to better assess risk using a fuller picture on potential borrowers’ credit history and could be beneficial for people who have the means to take on a loan but may have had a few blemishes in the past, such as one or two missed payments.
What is Negative Credit Reporting?
Negative credit reporting is the system Australia operated under until March 2014, which was based around only making a note of negative credit events. Lenders based their assessments of a potential borrower applicant solely on whether the applicant had any negative reports on their credit history, such as missed repayments or defaults.
Banks, credit unions and other lenders could access information concerning a potential customer’s credit applications – but not whether the application was approved or not. The credit report also included details of any overdue debts, defaults, bankruptcy, or court judgements.
What is Comprehensive (Positive) Credit Reporting (CCR)?
Positive credit reporting is Australia’s new credit reporting system aimed at making it easier for lenders to form comprehensive and balanced assessments of applicants’ credit histories. The credit report includes information about current accounts held, what accounts have been opened and closed, the date default notices were paid and whether repayments were met.
While some may raise concerns over the increased amount of personal financial information being given to banks, the comprehensive credit reporting system is largely seen as a positive step for consumers and lenders, encouraging responsible lending practices and enabling consumers to build a more comprehensive and positive credit report that could help them get a better deal from their chosen lender.
What does it mean for finance brokers?
With financial institutions providing a more complete picture of borrower behaviour, it becomes a very effective tool for brokers to have a lot of the initial discovery in a fraction of the time. More information means greater efficiency, which in turn can only be a good thing for loan book growth and client satisfaction.
Perhaps the most immediate and profound change will be around loan approval, largely because the broker and lenders are both working with similar data sets.
With positive reporting, the broker can work with the client to identify reparable financial behaviours that will ultimately improve their creditworthiness — in time securing the loan or negotiating a better rate.
Not only can the relationship be maintained, but it can build the kind of trust that creates a lifelong client relationship.
Whilst there are many positives for finance broker under the new regime, there are some procedural changes that should be implemented including training for finance brokers (Credit representatives) and more comprehensive information for clients. Finance brokers will be required to make their clients more aware of the benefits and repercussions of their credit report through discussion and possible other information brochures/key fact sheets.
For those clients with an adverse credit history, the business will need to adopt a system where the brokers can implement a longer term strategy to guide the client to adopt better credit practices in improving their chances for a loan and the possibility of a better interest rate. By signing a privacy form, clients should have the ability to request the finance broker, as agent, to obtain their credit report before commencing to application with the lender.
Referenced from: https://www.canstar.com.au/credit-score/what-is-positive-credit-reporting/ and
https://www.equifax.com.au/personal/articles/what-are-benefits-comprehensive-credit-reporting-consumers
Task 3 Questions:
Paul has asked you to review the above article and consider the ongoing changes to comprehensive credit reporting which is highly important information for staff and customers. He has also asked you to ensure staff knowledge across the article in relation to operational procedures and processes accurately reflect these changes. He has mentioned that linking to the Equifax website and other industry related information is a good way to remain up-to-date with ongoing changes.
Also, there are many ways to let clients know more about CCR and changes – see sample: https://www.inovayt.com.au/what-you-need-to-know-about-the-new-credit-reporting-laws-before-applying-for-a-home-loan/
1. What are the procedural implications of CCR on your organisation’s operations?
2. How might you stay up to date with changes in CCR or any other regulations?
3. What would be a good method and time frame for updating finance brokers (your staff) and clients regarding these changes? You may wish to place your answer in a table similar to the one below.
Who
How
By when
Task 4 – Workplace project
Due to increased workloads, Paul has hired new broker, Shona, on a subcontract basis and she will undergo 24 months of mentoring. Shona was formerly a loan processor in her previous role and already holds an FNS40815 Certificate IV in Finance and Mortgage Broking qualification.
1. As an initial measure to implement a successful monitoring of the authorisation process, discuss with Shona the procedures a responsible manager has to undergo to authorise her as an Authorised Credit Representative (ACR) with ASIC. This process forms part of the agency agreement required under ASIC between Licensee’s and their authorised representatives. Using the table below, complete the process of authorisation
https://asic.gov.au/for-finance-professionals/credit-licensees/credit-representatives/
a. Undertake
background checks
on that representative.
b. Ensure that they are
adequately trained
to engage in credit activities.
c. Ensure that they have
current external dispute resolution (EDR) scheme membership
before the authorisation is given.
d. Provide
written consent
to the appointment.
e. Ensure they have adequate systems and procedures in place to monitor and supervise their representatives (see
Monitoring and Supervising representatives
).
PROCESS
IMPLICATION
Background checks
Training requirements
Membership to an EDR scheme
Written consent
Monitoring and supervising
2. Shona has asked you the difference between registering under an ABN versus an ACN. In your own words describe what they are and how they differ. Information may be found on Wikipedia, www.business.gov.au or similar resource.
3. Shona would also like some advice from you regarding when she should register for GST. Explain the process for registering for GST, including who needs to register and when. Information may be found at www.ato.gov.au or www.business.gov.au
Task 5 – Activity
As the Responsible Manager you role is to determine and plan work to be completed by the finance brokers and team. As part your discussion with Paul, you have both decided that the Finance Brokers (ACR’s) need to undertake some further training to increase personal skills, make a more cohesive team and ensure service improvement. The training will contribute towards their professional development hours required for association membership and to meet ASIC requirements. This training should take place as soon as possible and needs to be completed within the next three months. To kick off the training (and lead by example) you have decided to commence with planning some training for yourself.
1. Identify three personal competency goals you would like to achieve in your role that would enhance your organisation’s image. Explain how you can go about developing the skills needed to achieve your goals and your ideal timeframe for completion. You may wish to use the responsible manager profile in the FMB Assessment Toolkit or choose your own goals.
Performance Objective
Required Skills
Current Skills
Time frame to complete
Example: Become a leader in my business
Learn leadership skills
No leadership experience
First 12 months
2. Referring to ASIC RG206, what are the minimum continuing professional standards for responsible managers? Include in your answer:
· the required number of hours
· how often your professional development should be completed, and
· what these activities should consist of.
https://download.asic.gov.au/media/4112044/rg206-published-15-december-2016
3. Based on the “Credit Representative Profiles” in the FMB Assessment Toolkit, and using the table below, complete a training needs analysis for each individual.
Individual
Performance Objective
Required Skills
Current Skills
Shona
Ron
Rashana
Lena
4. Using the “AAMC Training Course List” from the FMB Assessment Toolkit, determine which training will need to be completed by each ACR, whether it will be individually completed or as part of a team, and where the training will take place.
Individual
Course
Method of study
Time frame to complete
Resources Required
Offsite or in office
5. How could you ensure that your contribution serves as a role model to others and in turn, enhance the organisation’s image? Refer to Module1, Section 6.
6. Briefly explain how you would actively encourage individuals to participate in, take responsibility for and effectively communicate in team activities. Refer to Module 1, Section 5 of the learner guide.
7. Shona is having issues learning the company’s CRM system and has a loan ready to submit. Referring to the FMB Assessment Toolkit, answer the following questions:
a. What learning should Shona complete in order to adapt to the system and when can she complete this?
b. Which team members should be able to also provide support to Shona regarding the software?
8. Paul has asked you to provide some feedback to the team regarding the training outcomes. The team performed the tasks well and you would like to make sure you value and show encouragement towards their performance. How would recognise and reward individual and team efforts?
9. Paul has advised that the company are now using AAMC Training’s LMS to record CPD hours. Using the AAMC Training CPD area (this is an option in your AAMC member area under Professional Development Record CPD/CE) or by creating your own PD Statement (based on the AAMC Training example below) record a minimum of 20 hours of professional development activities that you may complete as a finance broker. Refer to the professional development section of the FMB Assessment Toolkit (under company professional development activities or AAMC Training courses). You may also choose some of your own activities.
Task 6 – Workplace Project
1. Paul would also like the team to attend a “First Home Buyer” event in hope to gain some new business. Your role is to determine what tasks would be allocated to whom within the business to get set up and have enough people on your stand throughout the day. The following answers are ‘free thinking’ questions and thus the learner guide or assessment may not contain the answers.
Not everyone needs to be involved but, you would like to ensure all the brokers get the opportunity to attend the event. Consider the variables and write down the tasks/ requirements into the planning table below in order of priority. Your task should be based on looking at the skills of all staff in the office (as detailed in the FMB Assessment Toolkit).
The event is happening at the Melbourne Convention Centre in two months’ time and you have been advised that any items for the stand must arrive two days beforehand.
· Organise for marketing materials, prizes and banners for stand
· Setting up the stand
· Packing up the stand after the event
· Maximum of two staff to attend the event (at any one time) and be on the stand per session 9am to 12pm & 1pm to 5pm. You should consider having different personality types to ensure that sales are being made consistently.
· Organise the courier to pick up the marketing materials for delivery to the venue
Task
Action
Who
To be completed by
2. All of your team members did really well in achieving some good interest at the event.
To prove that you value their efforts and to offer encouragement for future tasks, you have decided to provide rewards. Explain ways in which you could reward individual and team efforts.
3. You really want your team to get as many new prospects from the event as possible. What is a process or idea you may be able to use to encourage the team to participate?
Task 7 – Research
1. As part your own professional development, serving as a positive role model and teaching others, you have decided to review the MFAA Code of Practice. This will ensure a thorough understanding and future training standards. Explain the general standards of the code.
2. As part of maintaining and ensuring compliance, you have decided to check and categorise all statutory records accordingly. Under each of the headings below, list at least three types of registers that you believe fit the relevant category. Refer to the FMB Assessment Toolkit and/or Module 1, Section 8 of the learner guide to assist with your answer.
Recording Registers
Records and Certificates
Policies and procedures
3. You are auditing one of the teams’ Product Disclosure Proposals and need to discuss it with them before they hand it to the client. You’ve noticed (ongoing) commission is shown as an annual figure instead of monthly. The loan was for $320,000.
Fees and commissions
Fees payable to us for the provision of broking service
We do not charge any fees for our service. We get paid commission from the lender. [OR – remove as appropriate]
Our service fee is $ (including GST) or % of the finance amount, for arranging finance on your behalf. The fee is payable on approval of your loan/s. [You cannot charge a fee before you provide credit assistance]
Fees payable to third parties
There are no fees or charges paid by us to third parties. [OR – remove as appropriate]
Total fees and charges paid by us to third parties are $ (including GST). The fees and charges are paid to for arranging . [for example ‘paid to XYZ Company for arranging valuation’]
The fee is payable when required by the third party.
Estimate of commission to be received by us. This commission is payable to us for assisting you to obtain finance.
.65% of the amount of the principal finance amount shortly after the finance is provided. We estimate this to be $2,080.
.15% per annum of your outstanding loan amount owing payable monthly. We estimate the largest monthly payment to be $480.
These amounts are inclusive of GST.
Commission will be paid by:
The commission will be paid by the lender documented above to the licensee. The licensee will then pay some or all of the commission to the credit representative.
Other benefits
From time to time we receive benefits in the form of conferences and training sessions provided by the licensee, financiers, or others. The value of these benefits cannot be ascertained.
Estimate of total fees and charges payable to the financier in relation to applying for the finance.
These fees are payable by you.
Application/Establishment fees
$500
Valuation fees
$350
Legal/Documentation/Settlement fees
$800
Lenders mortgage insurance premium
$
Other
$
Total
$
These figures are estimates only and the final figures will be shown in your credit contract or lease. Some or all of these fees may be paid from the finance proceeds.
These fees are payable only once.
We are not aware of any other fees or charges payable to anyone else in relation to the application for finance, but the financier may impose some additional requirements.
[IF ANY FEES ARE DEFINITELY TO BE PAID FROM THE CREDIT OBTAINED, SPECIFY A REASONABLE ESTIMATE OF THE AMOUNT OF CREDIT LEFT AFTER PAYING THOSE AMOUNTS AND ANY FEES TO THE BROKER.]
Referral fee
The credit representative has paid or will pay a referral fee of $ to for referring you to us.
In addition, we receive referrals from a broad range of sources. For example, we may pay fees to call centre companies, real estate agents, accountants, or lawyers for referring you to us. These referral fees are generally small amounts and accord with usual business practice. These are not fees payable by you.
Using the table below correct the commission amounts.
Estimate of commission to be received by us. This commission is payable to us for assisting you to obtain finance.
.65% of the amount of the principal finance amount shortly after the finance is provided. We estimate this to be $
.15% per annum of your outstanding loan amount owing payable monthly. We estimate the largest monthly payment to be $
These amounts are inclusive of GST.
Task 8 – Research
The “
2017 Sustainability Report
” of the National Australia Bank details the bank’s strategies on Corporate Responsibility and its performance over the said year. It contains the organisation’s own version of sustainability principles how they have responded to environmental, social, governance and economic responsibility.
1. Access the above link to the 2017 Sustainability Report, specifically the table found on pages 9-12. Choose one material theme from each of the three major criteria for measuring profitability – social, environmental, and economic.
Social
Economic
Environmental
2. In your own words, using the table below complete each of the areas:
a) The impact/s on the different participants in the financial services industry. (Stakeholder view and relevance to NAB)
b) The practices, strategies, and policies that are incorporated in that material theme. (How we’re responding)
c) The outcomes have been reported from the incorporation of those material themes. (Performance)
Three major criteria for measuring profitability
NAB’s version of SUSTAINABILITY PRINCIPLES
(Material Theme)
Impact on industry
(Stakeholder View and Relevance to NAB)
NAB’s Activities
(How We’re Responding)
NAB’s Corporate Sustainability Outcomes
(Performance)
Economic
Environmental
Social
3. You and chosen members of your team have been tasked to create your own corporate sustainability framework, incorporating and supporting triple bottom line principals. Highlight at least one goal, under each of these headings that you would like to achieve for the business.
Astute Ability Finance Group’s Corporate Responsibility approach found in this website: http://astuteability.com.au/corporate-responsibility/ is an example that you may use as a reference.
Areas of the business
Sustainability goal
Your customers
Your staff
The community
The environment
4. Based on your goals, highlight the potential economic outcome/s on your business and the greater community.
Sustainability goal
Economic outcome/s
Task 9 – Short Answers
1. List at least three of the main sectors of the financial services industry that may impact your role as a finance broker.
2. In your own words, briefly explain the memorandum of understanding between ASIC and APRA.
Refer to ASIC link to assist you with the answer: https://asic.gov.au/about-asic/what-we-do/our-role/other-regulators-and-organisations/the-apra-asic-relationship/
SCENARIO – RESPONSIBLE LENDING CONDUCT OBLIGATIONS
Paul Janes has a tiling business and has earnt $90,000 for the most recent financial year. His wife Melanie works at Coles Supermarket on a part time basis and she has been promised the position of Store Manager, likely to earn $20,000 more than what she is currently earning. The couple are in their mid 40’s and have a son living at home. They have a current home loan of $250,000. They are seeking a personal loan from you for an overseas trip of $50,000. The couple have approximately three credit cards.
3. What are two or more qualifying questions you should ask the clients in the above scenario to clarify their financial situation?
4. Why is it important to make reasonable enquiries about a client?
5. Why is it important to take steps to verify a customer’s information?
SCENARIO – Anti-money laundering & counter terrorism financing
Sam Knight contacted you about obtaining a car loan and, as part of providing documents, he sent you uncertified copy of his driver’s licence.
6. What are your obligations under AML/CTF legislation in reference to Sam’s identification? (Refer to section Module 1, Section 2 of your Learner Guide – Money laundering and terrorism financing.) Explain the requirements of the customer identification and verification process.
7. Sam has also provided his tax assessment notice as evidence of his income for the loan application. As you have another Sam Knight (Samantha) on your books, you are wondering whether you could perhaps file each of the “Sam’s” by their tax file number for easy identification in the future. Referring to the use and disclosure of tax file number information found under Module one, Section 2 of the learner guide, provide an explanation as to whether this is acceptable practice.
SCENARIO 3 – HARDSHIP PROVISIONS
Maddison and Andrew (clients of yours) entered into a consumer loan with ABank. They have just been advised that Maddison is very unwell and has had several months off work. Her employer recently advised that they could no longer hold her job. As a result the couple have been struggling to meet their mortgage repayments and have fallen into default many times. They have provided a hardship application to the lender. Refer to the hardship provisions under responsible lending conduct obligation in Module 1, Section 2 of the learner guide.
8. Explain what the lender must do within 21 days of receiving the hardship application.
Financial Services Professional Practice, Legislation and Codes of Practice
Learning Guide V3.2 © AAMC Training Group 5
Section 1 The Australian financial sector, financial
system and external forces
The sector is vibrant and diverse, and provides an extensive range of
products such as, home loans, credit cards, personal loans and personal
overdrafts. It is one of the fastest growing sectors in our economy and a
significant contribution to our Gross Domestic Product (GDP).
The industry maintains a highly responsible approach to ensure financial
providers are safe and transparent. It’s large and mature financial
services sector has assets equivalent to almost three and half times
Gross Domestic Product.
The rapid growth in Australia’s government-mandated retirement
savings has contributed to a strong, sophisticated and innovative
financial services sector. Australia offers global financial institutions
opportunities in a rapidly expanding domestic market and an ideal
location for servicing markets in the Asian time zone.
The Australian financial sector in a global context
Australia is the first major financial centre to open in the Asian time
zone, providing a trading day that bridges the closing of the USA market
and the opening of European markets. Global financial services firms are
able to provide after-hours coverage for their USA and European
operations from Australia in a ‘follow the sun’ system. With their
strategic advantage over Tokyo, Hong Kong and Singapore, Australia is
an ideal base from which to offer financial services throughout the Asia-
Pacific region.
The Australian financial system
The Australian financial system provides financial services and products.
Its role is to serve the financial needs of consumers and producers, and
to allocate financial services between these competing needs. When it
allocates financial services, it exercises significant control over the
pattern of goods and services produced in the Australian economy
The primary function of the Australian financial system is to:
Enable transactions for goods and services to take place without
reliance upon the process of barter
Make possible the transfer of funds and financial assets between savers
and borrowers
Assists investors who are seeking to balance their risk, liquidity and
returns.
Financial Services Professional Practice, Legislation and Codes of Practice
6 © AAMC Training Group Learning guide V3.2
To carry out this function efficiently the Australian financial system is
required to:
Provide an effective and certain payments mechanism
Fully mobilise savings
Channel those savings into fields of investment which generate the
highest return, consistent with the risk involved
Offer a suitable range and diversity of financial instruments and
intermediaries
Operate at minimum cost in terms of resources used per unit of service
provided.
External forces that influence the industry
The financial services sector is continually changing with many external
forces impacting the performance and progression of the industry. The
impact of these forces are at varying degrees, depending on the timing
and level of change.
Government, Regulation and Compliance – Government regulation
affects the financial services industry in many ways, but the specific
impact depends on the nature of the regulation. Increased regulation
typically means a higher workload for people in financial services,
because it takes time and effort to adapt business practices to ensure
that the new regulations are being followed correctly.
Employment & Outsourcing – There is an increasing demand for
Australian companies to move internal operations and some services
offshore due to strong competitive pressures, cheaper skilled labour, as
well as advances in communication technologies. Financial Services
companies such as major banks and other providers are following this
trend. However, the long term negative impact may see a fall in
employment in Australia and thus impact the ability for many
Australians to borrow and invest.
Technology – In recent years, two key developments have helped
facilitate rapid advancements in digital technology: information and
internet connections have become faster and more reliable, and mobile
internet has become increasingly widespread due to the rollout of 3G
and 4G wireless internet networks and the popularity of smartphones
and tablet computers. These technological advances have been both a
challenge and an opportunity for the financial services industry. The
free flow of information has intensified the competitive environment
and technological advances are providing new means to change internal
processes in order to raise efficiency and remain competitive.
Population Growth and Trends – Population growth effects the
financial services in many ways including increased needs for products
and services. Population trends show that people are living longer and
either remaining in the workforce beyond retirement age or living
Financial Services Professional Practice, Legislation and Codes of Practice
Learning Guide V3.2 © AAMC Training Group 7
longer in retirement. The desire for sustained living standards impacts
the financial services industry due to increased product developments
such as more flexible superannuation, investment and lending products.
Changing customer needs and expectations – Demographic and
technology changes bring demands for new products and services,
along with increasing complexity in customer interactions. Increasing
educational standards and increased information via information
technology and media, allows borrowers and investors to be better
informed when making decisions.
Socially responsible investing, sustainability and climate change
– The increasing physical impacts of climate change, bringing warmer
temperatures, increased water scarcity, and more frequent and severe
weather events, pose immediate and long-term threats that will ripple
throughout the financial services sector’s operations by impacting
investments made on behalf of financial services clients. Sustainability
effects many aspects of a business not just environmental, it also
impacts economic prosperity and social well-being. Demand from
consumers for better products and services pushes businesses to have
more streamlined operations through enhanced technology, quicker
turnaround times and the provision of more efficient services.
Financial services sectors
The financial service industry is considered as a sector in its own right.
It is however made up of many sectors which are generally referred to
as a conglomerate of participants who share commonality in their
products and services of a larger sector. The financial sectors in
Australia could be broken down into some of the following:
Regulatory – Australian Securities and Investment Commission,
Australian Stock Exchange, Reserve Bank of Australia, AUSTRAC
Banking – Australian banks, foreign banks and merchant banks
Non-banks –credit unions, building societies, non-conforming lenders,
mortgage managers, private funders
Insurance – insurers, reinsurers
Superannuation – industry superannuation funds, retail
superannuation funds, self-managed superannuation funds
Investment – fund Managers, share market, asset management,
hedge funds
Finance Broking – aggregators, finance brokers, mortgage brokers,
industry associations
Accountancy & Taxation – accountants, Australian Taxation Office,
Tax Practitioner’s Board, industry associations
Financial Planning – financial planners, investment advisers,
insurance brokers, dealer groups, product providers,
industry
associations.
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The individual participants in these sectors are the relevant companies
and professionals working within some of these sectors. The sectors can
be broken down in several ways; by business types (as indicated above)
or by services. For example; retail banking, private banking and
investment banking. These sectors work together to maintain a
functioning system by ensuring regulation standards and compliance are
adhered to. These sectors are further explored in more detail within
further sections of the learner guide.
Financial services providers
Financial services providers are entities directly involved in the transfer
of funds between borrowers and savers. By harnessing the savings of
the community and in turn providing the funds necessary to fuel an
economy based on private ownership, they are an essential element in
the efficient allocation of financial resources for productive purposes.
The major financial service providers in the Australian financial services
industry are:
Banks
Non-bank financial institutions such as credit unions, building societies,
money market corporations and finance companies
Insurance companies.
Financial institutions in Australia may also be categorised as:
Authorised Deposit Taking Institutions (ADI’s) which includes banks,
credit unions and building societies
Non ADI Financial Institutions, Insurers and Funds Managers.
Banks
A bank may be defined as a body of persons, whether incorporated or
not, which carries on the business of banking. This is specified as:
Conducting current accounts for its customers
Paying cheques drawn on it, and
Collecting cheques for its customers.
Banks act as payment agents by conducting chequing or current
accounts for customers, paying cheques drawn by customers on the
bank, and collecting cheques deposited to customers’ current accounts.
Banks also enable customer payments via other payment methods such
as telegraphic transfer, Electronic Funds Transfer at Point of Sale
(EFTPOS), and Automated Teller Machines (ATM).
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Banks borrow money by accepting funds deposited on current accounts, by
accepting term deposits, and by issuing debt securities such as banknotes
and bonds. Banks lend money by making advances to customers on
current accounts, by making instalment loans, and by investing in
marketable debt securities and other forms of money lending.
Banks provide almost all payment services, and a bank account is
considered indispensable by most businesses, individuals and
governments.
Banks’ activities can be divided into:
Retail banking, dealing directly with individuals and small businesses;
Business banking, providing services to mid-market business;
Corporate banking, directed at large business entities;
Private banking, providing wealth management services to high net
worth individuals and families; and investment banking, relating to
activities on the financial markets.
Banks have traditionally been the dominant institutions in the financial
sector and are held in a position of special confidence by the public. The
collapse of a bank would undermine public confidence in the entire
financial sector and thus would have severe repercussions.
The role of the bank is to:
Place the interests of depositors ahead of those of shareholders, thus
absorbing some of the risks of default.
Spread the risk of loan default amongst all depositors and shareholders.
Pool and utilise depositors’ funds.
Use their expertise for conducting transactions.
The importance of the banking sector is reflected by its role in the
payments system as much as by the scale of banking operations. Banks
play an essential role in the operation of the two most common methods
of settling debt in Australia, cheques and cash.
Banks indirectly bear the cost of organising the distribution of notes and
coins to meet the demand for currency as well as the associated transport
and security costs. They also have an exclusive right to issue cheque
accounts and although there have been developments in cheque payment
systems that have permitted non-bank groups to provide cheque accounts
to clients, banks remain the dominant providers of cheque facilities.
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Private banking and wealth management
Private banking is a term for banking, investment and other financial
services provided by banks to private individuals disposing of sizeable
assets. The term “private” refers to the customer service being rendered
on a more personal basis than in mass-market retail banking, usually
via dedicated bank advisers.
Wealth Management is classified as an advanced type of financial planning
that provides individuals and even families with private banking, estate
planning, asset management, legal service resources, trust management,
investment management, taxation advice, and portfolio management.
Thus, wealth management encompasses asset management, client
advisory services, and the distribution of investment products.
Persons engaged in wealth management may work for law firms,
accounting firms, brokerage firms, large banks, trust departments, or
investment and portfolio management firms.
As the array of potential investment products widens, the job of a
private banker and wealth management adviser are becoming
increasingly complex. Both private bankers and wealth management
advisers need an understanding of financial products, from basic shares
and bonds to complex financial derivatives. An increasing proportion of
their clients’ wealth is now also invested in hedge funds.
Non-banking financial institutions
Before deregulation, banks were subject to a variety of regulations that,
to a certain extent, inhibited their ability to be competitive and explore
new fields of endeavour. A void was created which non-bank financial
institutions filled, catering for that end of the market, which banks were
less interested in servicing – that is, the small investor, the short-term
borrower, or the person wanting a more personal service with a degree
of face-to-face contact.
The Australian financial system includes a range of non-bank financial
institutions (NBFIs). NBFIs include:
Building societies
Credit unions
Finance companies
Merchant banks
Authorised money dealers
Fund managers
Wholesale funders
Mortgage managers.
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Building societies
Building societies are involved mainly in the provision of mortgage
finance for owner-occupied housing. They collect funds mainly by
tapping into household savings, along with the issuing of credit cards
and the provision of current account deposit facilities via the
establishment of agency arrangements with a trading bank. Due to
economies of services and networks, there has been a trend for building
societies to merge with existing banks.
Whilst building societies are primarily providers of deposit services and
lending, there has been some expansion into funds management, which
has resulted in the provision of limited investment advice.
Credit unions
Credit unions are co-operative organisations, owned by their members
and run on a non-profit basis. They concentrate upon meeting the
financial requirements of members, providing avenues for investment
and borrowing. They differ from building societies in two main respects.
Firstly, membership is limited to those with some common bond. For
example, people working in the same industry. However, with
amalgamations between different credit unions these bonds are less
prevalent and most people would now qualify to join a credit union.
Secondly, lending to members is for more general purposes than
housing. For example, cars, holidays, boats.
Membership of a credit union is usually achieved through the purchase
of non-transferable (but redeemable) shares.
Finance companies
Finance companies provide various types of loans, including credit for
retail sales, personal loans, finance for housing, wholesale financing,
lease financing and other commercial loans. Most loans to consumers
are for the purchase of consumer durables over relatively short-terms.
Lending to the business sector includes lease financing as well as other
commercial loans, including loans for non-residential property
investment. These are generally for short to medium-term periods.
Finance companies represent an alternative destination for individuals
and business savings because funds required for lending are borrowed
from the public, mainly by way of debentures, notes and deposits.
As a general rule, finance companies are not big lenders of mortgage
finance for residential purposes. They normally provide finance for
consumer goods, home improvements, commercial property, leasing
and factoring. Those companies that do lend for residential property will
likely specialise in non-conforming lending to borrowers who may not be
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able to obtain mortgage finance from traditional lenders because of
credit impairments such as a history of bankruptcy or loan delinquency,
or other circumstance.
Whilst finance companies are providers of debt instruments they
normally do not provide financial product advice.
Merchant banks
Merchant banks (also known as money market corporations) operate at
the ‘wholesale end’ of the financial markets, the ‘middleman’ between
companies issuing securities to raise funds and the investors who buy
the paper. They perform an important intermediary role, channelling
sizeable parcels of funds to large private corporations and Government
agencies and are an important conduit by which overseas capital is
brought into Australia.
Merchant banks deal in private and government securities, acceptance
of bills, underwriting issues of debt and equity capital, and devising
innovative finance packages (in return for a fee) for corporate clients.
They are not subject to the same regulation as ordinary banks nor do
they accept deposits from the public like ordinary banks.
Merchant banks derive their income chiefly from fee-based activities or
profits from trading securities, rather than from a margin between
borrowing and lending costs.
Authorised money dealers
Authorised money market dealers operating within the short-term money
market (STMM) provide a source of wholesale funding at market-
determined rates, enabling companies and financial institutions to
efficiently manage risk and liquidity by utilising money market instruments.
In 1996 the special role played by the authorised money market dealers
was effectively terminated. The Reserve Bank of Australia now deals with a
wider range of institutions in both the official and unofficial money markets
when trading short-term Commonwealth government securities.
Fund managers
Managed funds pool the investment funds of individual investors and
invest it on their behalf. By utilising a managed fund, investors gain
access to markets, instruments and expertise that would otherwise be
unavailable to them. Each has a proportional share (according to the
number of units they own) in all the distributions of income earned by
the fund.
Changes in the value of the fund’s underlying assets are reflected for
each unit holder by changes to the unit price of the fund.
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In the last decade, funds management has been the fastest growing
area of the finance sector. The variety of institutions involved in funds
management now includes superannuation funds, life offices, public unit
trusts, friendly societies and trustee companies.
Wholesale funders
Securitisation is a financing technique involving the conversion of non-
liquid assets with predictable cash flows into marketable securities.
Loans or mortgages fall into this category. Normally a lender may hold
all loans as non-liquid assets on its balance sheet. Since these assets
provide cash flows consisting of both principal and interest payments,
they can be packaged and turned into securities which are then sold to
investors through trusts or companies. As the transaction is generally
structured as an asset sale, they will be removed from the seller’s
balance sheet.
To fund the purchase they would be reissued as mortgage backed
securities or bonds. These bonds, worth millions of dollars, are then sold
to large-scale investors, which are attracted to better than bank-interest
returns of an extremely safe nature. In fact, this type of investment is
AAA rated by both Moody’s and Standard and Poor’s (S and P) of the US
(the highest rating achievable).
Australia has a well-established and increasingly sophisticated
securitisation market. In fact, Australia has one of the oldest
securitisation markets in the world. As a result most of the structural,
regulatory and legal issues, which may arise in global securitisation
transactions, have been successfully addressed in the Australian market.
Mortgage originators
Mortgage originators are intermediaries who originate (or locate)
mortgage business. There is a growing preference for mortgage industry
professionals to be called mortgage originators because it is firstly seen
as a more modern term clearly aligned with their practice and secondly
because it is seen as a more reputable term because of the damage
done to mortgage brokers by unscrupulous practitioners in the past.
Mortgage originators may be independent or carry out their business as
an appointed franchisee or licensee. They may also be real estate agents
who sell loans through existing real estate offices.
Mortgage originators are generally seen as working in the best interests
of borrowers. They may have access to a number of different lenders
products. A mortgage originator represents a borrower whereas a
mobile lender working for one lender represents that lender.
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The regulators and their impact on the
Australian financial sector
The regulatory framework is the system of legislation, common law and
government oversight for the financial services industry. It comprises
two parts:
The Respective Federal or State Parliaments
The corresponding regulators.
Regulators at the federal level include the following:
Australian Securities and Investment
Commission (ASIC)
Australian Prudential Regulatory Authority (APRA)
Reserve Bank of Australia (RBA)
Australian Securities Exchange (ASX).
Australian Transactions and Reports Analysis Centre
(AUSTRAC)
Office of the Australian Information
Commissioner (OAIC)
Foreign Investment Review Board (FIRB)
The Australian Human Rights Commission (AHRC)
Australian Competition and Consumer Commission
(ACCC)
In financial markets there are other institutions, which participate, in the
regulatory framework. These tasks cover the governance and the
implementation of the requirements of the acts and regulations. Some
provide guidelines for practice. For example, ASIC publishes a large and
growing number of policy statements known as regulatory guides
(formerly called “policy statements”). Many also investigate breaches of
the regulations and unlawful activities, and prosecute offenders
accordingly. ASIC and the ACCC activities in this regard are highly
publicised. Some, such as the ASIC and the ACCC, can seek severe
penalties for deliberate and major breaches.
The Australian Securities and Investments
Commission (ASIC)
The Australian Securities and Investments Commission (ASIC) is
Australia’s corporate, markets and financial services regulator.
ASIC contribute to Australia’s economic reputation and wellbeing by
ensuring that Australia’s financial markets are fair and transparent,
supported by confident and informed investors and consumers.
ASIC is an independent Commonwealth Government body. ASIC is set
up under and administers the Australian Securities and Investments
Commission Act 2001 (ASIC Act), and carries out most of its work under
the Corporations Act 2001 (Corporations Act).
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The ASIC Act requires ASIC to:
maintain, facilitate and improve the performance of the financial system
and entities in it
promote confident and informed participation by investors and
consumers in the financial system
administer the law effectively and with minimal procedural
requirements
enforce and give effect to the law
receive, process and store, efficiently and quickly, information that is
given to us
make information about companies and other bodies available to the
public as soon as practicable.
Who ASIC regulates
ASIC regulates Australian companies, financial markets, financial
services organisations and professionals who deal and advise in
investments, superannuation, insurance, deposit taking and credit.
As the consumer credit regulator, ASIC licenses and regulates people
and businesses engaging in consumer credit activities (including banks,
credit unions, finance companies, financial planners ,mortgage and
finance brokers).
It ensures that licensees meet the standards – including their
responsibilities to consumers – that are set out in the National
Consumer Credit Protection Act 2009.
As the markets regulator, ASIC assess how effectively authorised
financial markets are complying with their legal obligations to operate
fair, orderly and transparent markets. ASIC also advise the Minister
about authorising new markets.
On 1 August 2010, ASIC assumed responsibility for the supervision of trading
on Australia’s domestic licensed equity, derivatives and futures markets.
As the financial services regulator, ASIC license and monitor financial
services businesses to ensure that they operate efficiently, honestly and
fairly. These businesses typically deal in superannuation, managed
funds, shares and company securities, derivatives and insurance.
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Which laws do ASIC administer?
ASIC administers the following legislation (or relevant parts of it), as
well as relevant regulations made under it:
Australian Securities and Investments Commission Act 2001
Corporations Act 2001
Business Names Registration Act 2011
Business Names Registration (Transitional and Consequential
Provisions) Act 2011
Insurance Contracts Act 1984
Superannuation (Resolution of Complaints) Act 1993
Superannuation Industry (Supervision) Act 1993
Retirement Savings Accounts Act 1997
Life Insurance Act 1995
National Consumer Credit Protection Act 2009, and
Medical Indemnity (Prudential Supervision and Product Standards) Act
2003.
Other regulators also administer some parts of these Acts. For example,
parts of the last four Acts dealing with prudential regulation are
administered by the Australian Prudential Regulation Authority (APRA).
ASIC is responsible for the way in which financial institutions relate
products to consumers. The remaining provisions of these acts are
administered by other regulators within the Australian financial system.
What are regulatory guides (RGs)?
In order to carry out its duty of implementing legislation, ASIC will seek
feedback from stakeholders on matters ASIC is considering, such as
proposed relief or proposed regulatory guidance proceeding the
implementation or updates to the regulatory guides.
Regulatory guides provide guidance to reporting and regulated entities by:
explaining when and how ASIC will exercise specific powers under
legislation (primarily the Corporations Act)
explaining how ASIC interprets the law
describing the principles underlying ASIC’s approach, and/or
giving practical guidance (e.g. describing the steps of a process such as
applying for a licence or giving practical examples of how regulated
entities may decide to meet their obligations
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The complete list of regulatory guides is available at ASIC’s website
(http://www.asic.gov.au/regulatory-resources/find-a-
document/regulatory-guides/).
The Australian Prudential Regulation Authority (APRA)
The constitution and broad powers of the Australian Prudential
Regulation Authority (APRA) are described in the Australian Prudential
Regulation Authority Act 1998. As a prudential authority, the main focus
of APRA is to oversee the ability of financial institutions to honour their
commitments as and when they fall due.
APRA’s duties often overlap with other regulatory bodies and in
particular ASIC. Both APRA and ASIC assert the close links that exist
between the agencies.
APRA administers the prudential components of the following pieces of legislation:
Superannuation Industry (Supervision) Act 1993 (the ‘SIS’ Act)
Retirement Savings Accounts Act 1997
Life Insurance Act 1995
Insurance Act 1973.
These acts give APRA responsibility for the prudential regulation of
superannuation funds, banks, credit unions, building societies, friendly
societies and insurance companies. APRA can intervene when it believes
that a financial entity either has, or is likely to become unable to meet
its obligations as and when they fall due. This intervention may even
allow APRA to assume effective control of ‘at risk’ entities.
APRA also takes responsibility for the authorisation of Authorised
Deposit Taking Institutions (ADIs), a list of which is published on the
APRA website. In 2017, responsibility to regulate non-bank lenders has
moved from ASIC over to APRA.
Activity 1 – ASIC
All ASIC regulatory guidance can be accessed, free of charge,
online at www.asic.gov.au. These course materials will
occasionally refer to particular ASIC regulatory guidance.
Identify the key regulatory guides, which would apply to financial
services and the provision of consumer credit advice.
Check the model answers section
http://www.asic.gov.au/regulatory-resources/find-a-document/regulatory-guides/
http://www.asic.gov.au/regulatory-resources/find-a-document/regulatory-guides/
http://www.asic.gov.au/
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The Reserve Bank of Australia (RBA)
The Reserve Bank of Australia (RBA) is Australia’s central bank and is
responsible for the implementation of monetary policy and the
maintenance of financial stability in the Australian economy.
The major tool of monetary policy is interest rates, which are heavily
influenced by RBA policy. In addition, the RBA provides some banking
and registry functions to various government entities. The RBA is
administered under the Reserve Bank Act 1959.
The Australian Stock Exchange (ASX) and market
supervision
In accordance with the Corporations Act 2001 the Australian Stock
Exchange (ASX) is required to ensure that its markets are fair, orderly
and transparent. As a result, ASX’s overarching supervisory objective is
to meet these statutory obligations and hold three Australian Financial
Services Licences (AFSL) to achieve this – a market operator licence
which is held by ASX entity and two clearing and settlement facility
licences held by Australian Clearing House (ACH) and ASX Settlement
and Transfer Corporation (ASTC) respectively.
ASX customer charter
The Customer Charter does not mean always agree with its customers;
it may adopt different positions when it comes to the best way to secure
the future of Australia’s financial markets. But it is because differences
may arise that need to be engaged more, not less.
Activity 2 – APRA
You can visit the APRA website using the link www.apra.gov.au to
gain an insight into the operations of this regulatory body. You can
also find out information about APRA’s blueprint for supervision
using the following link:
www.apra.gov.au/AboutAPRA/Documents/APRA-Supervision-
Blueprint-FINAL
What are APRA’s phases for supervision?
Check the model answers section
http://www.apra.gov.au/
file:///C:/Users/meremie.kingham/AppData/Local/Temp/15/www.apra.gov.au/AboutAPRA/Documents/APRA-Supervision-Blueprint-FINAL
file:///C:/Users/meremie.kingham/AppData/Local/Temp/15/www.apra.gov.au/AboutAPRA/Documents/APRA-Supervision-Blueprint-FINAL
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The ASX Customer Charter makes the following commitments. That ASX:
Works with its customers to deliver products and services that meet
their needs and that provide them with choice
Supports Australia’s aspiration to be globally competitive and become
one of the leading financial centres in the Asia Pacific region
Makes its products and services available on a non-discriminatory basis
and on reasonable commercial terms
Manages its businesses and operations on a commercial basis to
benefit its customers and provide appropriate returns to ASX
shareholders
Recognises its role as a provider of critical financial infrastructure to
the Australian financial markets, and makes the necessary investments
to ensure it can fulfil this role and provide confidence to market
participants, investors and regulators
Runs its operations in compliance with all legal and regulatory
obligations
Has conflict handling arrangements in place that provide assurance and
transparency about the way ASX conducts its business.
Australian Transaction Reports and Analysis Centre
(AUSTRAC)
Australia’s anti-money laundering program places obligations on
financial institutions and other financial intermediaries through the
Financial Transaction Reports Act (FTRA) and requires ‘cash dealers’
(financial institutions) to report to the Director of The Australian
Transaction Reports and Analysis Centre (AUSTRAC).
The Act relates mainly to:
Reporting of cash transactions of A$10,000 or more or the foreign
currency equivalent
Suspicious transactions
Identification procedures when opening accounts.
The FTRA requires accounts to be opened in the correct name of the
customer to avoid the risk of accounts being used for tax avoidance or
criminal purposes.
Accounts include cheque accounts, deposit accounts and loans to
customers. Proposed changes to anti money laundering laws may well
see an extension of these requirements to include other products.
Agencies like AUSTRAC play a vital role in following the money trail of
criminals, particularly organised crime syndicates and, more recently,
terrorism funding and related transactions.
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Avoidance of reporting and reporting false or incomplete information
attract penalties for an organisation and its staff as well as persons who
facilitate or assist these activities.
The Office of the Australian Information
Commissioner (OAIC)
The Office of the Australian Information Commissioner (OAIC) has
regulatory functions with matters related to the handling of information.
Specifically the Commissioner administers and enforces the Privacy Act
1988 (Commonwealth) as amended by the Privacy Amendment
(Enhancing Privacy Protection) Act 2012 (Privacy Amendment Act) and
the Privacy Amendment (Notifiable Data Breaches) Act 2017.
This Act contains 13 Australian Privacy Principles (APPs) that set out
how private sector organisations should collect, use, keep, secure and
disclose personal or sensitive information about individuals and the
rights of those individuals to access and correct such information.
This Act affects all individuals who use or can access personal
information in the course of their work.
The OAIC has regulatory functions with matters related to the handling
of information and administers and enforces the Privacy Act.
The principles of the Privacy Act aim to protect personal information by
emphasising the need for confidentiality and ensuring the individual is
given a measure of control over the manner in which personal information
is used and disseminated. You must not disclose any information to any
other third party without the written consent of your customer.
Every person working in the financial services industry must be
concerned with confidentiality.
You will have access to detailed personal information about your
customers. You need to take this responsibility very seriously and be
very clear on whom information can be provided to, and when.
The following principles provide a good guide to ensuring customer
confidentiality:
Customer information is only to be given to the customer or another
party who has a legal right to access the information.
Customers must be identified in some way (in accordance with your
organisation’s policies and procedures) before giving out information.
You may only change a customer’s information upon written advice from
the customer or a legitimate legal or administrative person.
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The Foreign Investment Review Board (FIRB)
The FIRB examines proposals by foreign interests seeking to obtain ‘an
interest’ in Residential, Commercial and Rural real estate.
‘An interest’ includes buying real estate but can also involve obtaining or
agreeing to enter into a lease, or financing or profit sharing arrangements.
Foreign purchasers intending to acquire real estate in Australia must seek
prior approval from the government through the FIRB unless specifically
exempted by the Foreign Acquisitions and Takeovers Regulations. The
types of properties that may be purchased by foreign investors vary with
some restrictions placed on those that are permissible.
Agriculture
Proposed direct interests in an agribusiness generally require approval
where the value of the investment is more than $57 million, with an
exemption applying to investors from Australia’s trade agreement
partners and a $0 threshold applying to
Foreign Government investors.
Proposed investments in agricultural land generally require approval
where the cumulative value of a foreign person’s agricultural land
holdings exceeds $15 million, with exceptions applying to investors from
Australia’s trade agreement partners and a $0 threshold applying to
Foreign Government investors.
Business
Proposals to acquire an interest of 20 per cent or more in any business
valued at over $261million (or the higher threshold of $1,134 million for
agreement country investors from Chile, China, Japan, Korea, Singapore
New Zealand and the United States) require prior approval. All foreign
government investors also require approval to acquire a direct interest in
an Australian entity or an Australian business or to start a new Australian
business, regardless of the value of the investment ($0 threshold).
The Treasurer can prohibit foreign investment proposals found to be
contrary to the national interest, or can impose conditions on an
investment to address national interest concerns.
Commercial real estate
Foreign persons may be required to notify and receive a no objections
notification before acquiring an interest in commercial land in Australia.
Different rules apply depending on whether the land is vacant or not,
whether the proposed acquisition falls into the category of sensitive
commercial land that is not vacant, and the value of the proposed
acquisition.
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Residential Real Estate
The Government’s policy is to channel foreign investment into new
dwellings as this creates additional jobs in the construction industry and
helps support economic growth. It can also increase government revenues,
in the form of stamp duties and other taxes, and from the overall higher
economic growth that flows from the additional investment.
Foreign investment applications are therefore generally considered in light of the
overarching principle that the proposed investment should increase Australia’s
housing stock (be creating at least one new additional dwelling).
The annual vacancy fee is part of the Government’s comprehensive housing
affordability plan and seeks to increase the number of properties available for
Australians to live in. Foreign persons who purchase residential real estate will be
subject to an annual vacancy fee where the property is not residentially occupied
or rented out for more than six months in a year.
It is important that foreign investors understand and comply with
Australia’s foreign investment framework as strict criminal and civil
penalties may apply for breaches of the law, including disposal orders.
Applications to purchase new dwellings are usually approved without
conditions. Applications to purchase vacant land are normally approved
subject to construction being completed within four years (to prevent
land banking). Once new dwellings are built or purchased, they may be
rented out, sold, or retained for the foreign investor’s own use.
Land that has previously had an established dwelling on it would
generally not be treated as vacant land for the purposes of Australia’s
foreign investment framework.
Non-resident foreign persons are generally prohibited from purchasing
established dwellings in Australia. However, reflecting the fact that
foreign persons who are temporary residents need a place to live during
their time in Australia, temporary residents can apply to purchase one
established dwelling to use as a residence while they live in Australia.
The purchase of an established dwelling in these circumstances would
normally be conditional on the foreign person selling the property when
they leave Australia, or cease being a temporary resident and do not
become a permanent resident or an Australian citizen. Temporary
residents cannot acquire established dwellings to rent out or for use as a
holiday home.
Consistent with the aim of increasing the housing stock, foreign persons
(both temporary residents and non-residents) can apply for approval to
purchase an established dwelling for redevelopment (that is demolishing
the dwelling and constructing new residential dwellings in its place).
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These applications are normally approved on the condition that at least
two dwellings are built for the one demolished.
Foreign persons must have received foreign investment approval before
they acquire an interest in residential real estate.
Amendments based on the Budget 2017 changes
The Australian Government, via the 2017-18 Budget, announced several
changes regarding the foreign investment framework.
A 50 per cent cap on the total amount of dwellings a developer can sell
to foreign persons under a New Dwelling Exemption Certificate
Annual vacancy Charge. A levied charge on foreign owners of
residential property where the property is not occupied or genuinely
available on the rental market for at least six months per year.
Application fees for foreign purchases of residential properties valued at
less than $10 million will increase by 10 per cent
Australia’s Foreign Investment Policy (1 July 2017)
The foreign investment review framework includes the Foreign
Acquisitions and Takeovers Act 1975 (Act) and the Foreign Acquisitions
and Takeovers Fees Impositions Act 2015 (Fees Imposition Act) and
their associated regulations.
The Government has introduced a range of amendments that will reduce
the requirement for investors to seek multiple approvals for similar low
risk transactions, amend the commercial fee framework to improve
transparency and consistency, and improve the treatment of low risk
commercial transactions to enable the system to operate more
efficiently and reduce regulatory burden.
Key changes include:
Streamlining and simplifying the commercial fee framework
Introducing a new business exemption certificate:
Introducing two new Residential Exemption Certificates:
Amending the treatment of residential land used for commercial
purposes:
Narrow the scope of the ‘low threshold’ non-vacant commercial land
definition:
Other minor amendments including Solar and wind farms.
Additional information, in greater detail than above, can be located
under ‘Policy Documents’ on the FIRB website at www.firb.gov.au
http://www.firb.gov.au/
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24 © AAMC Training Group Learning guide V3.2
The Australian Human Rights Commission (AHRC)
Formerly the Human Rights and Equal Opportunity Commission, the
Australian Human Rights Commission (AHRC) was established in 1986
by an act of the federal Parliament. The AHRC is an independent
statutory organisation and reports to the federal Parliament through the
Attorney-General.
The AHRC has statutory responsibilities under the following federal laws:
Age Discrimination Act 2004
Disability Discrimination Act 1992
Australian Human Rights Commission Act 1986
Sex Discrimination Act 1984
Racial Discrimination Act 1975
Australian Competition and Consumer Commission
(ACCC)
The ACCC is an independent Commonwealth statutory authority whose role
is to administer and enforce the Competition and Consumer Act 2010 along
with a range of additional legislation, promoting competition, fair trading and
regulating national infrastructure for the benefit of all Australians.
Role of the ACCC
Competitive markets increase the prosperity and welfare of Australian
consumers. The ACCC’s role is to protect, strengthen and supplement the way
competition works in Australian markets and industries to improve the
efficiency of the economy and to increase the welfare of Australians.
This means the ACCC will take action where this improves consumer
welfare, protects competition or stops conduct that is anti-competitive
or harmful to consumers, and promotes the proper functioning of
Australian markets.
Our priorities are reflected in four key goals:
1. Maintain and promote competition and remedy market failure
2. Protect the interests and safety of consumers and support fair
trading in markets
3. Promote the economically efficient operation of, use of and
investment in monopoly infrastructure
4. Increase our engagement with the broad range of groups affected by
what we do.
ACCC initiatives also include promoting consumer education in regional
and rural areas and with indigenous communities.
Financial Services Professional Practice, Legislation and Codes of Practice
Learning Guide V3.2 © AAMC Training Group 25
The role complements that of state and territory consumer affairs
agencies who administer mirror consumer protection legislation in their
jurisdictions, and the policy work of The Treasury’s Competition and
Consumer Policy Division.
Financial services professionals
In addition to banks and non-bank financial institutions, there are a range of
professionals who play a significant role in the Australian financial system.
Some of these professionals specialise in providing advisory services to retail
clients, such as stockbrokers, and other financial advisers who work in
financial planning, insurance, wealth management and private banking whilst
other professionals, such as actuaries focus on servicing the needs of
institutional clients. Credit providers and finance brokers are also part of the
finance professional industry.
Industry associations
Most industries in Australia are represented by industry related
associations. Typically not-for-profit organisations, industry associations
provide members with a range of services and support.
Industry associations may:
give you information about your industry (i.e. how changes to
legislation will affect your business)
provide you with useful resources (i.e. information and programs to
help you meet industry standards)
run training and education programs
organise seminars
facilitate networking events
manage mentoring programs
connect you with other businesses in your industry
arrange public relations or advertising activities to promote your
industry
organise advertising campaigns to educate or persuade the public about
issues relevant to your industry
lobby on behalf of your industry to influence government policy.
These associations offer some information and services for free, but, in
most cases, you need to become a member and pay a fee to access
their full range of information, resources and services.
In many industries, becoming a member of the peak body can give your
business credibility as your membership proves to customers that you
have met strict criteria and have certain qualifications and experience.
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Some common industry associations for finance broking are as follows:
Mortgage Finance Association of Australia (MFAA) – www.mfaa.com.au
Finance Brokers Association of Australia (FBAA) – www.fbaa.com.au
Commercial Finance Brokers Association of Australia (CAFBA) –
www.cafba.com.au
These associations are described in further detail, including their code of
conduct, in further sections of the learner guide.
Some industry associations for other finance professionals include:
Financial Planners Association (FPA)
Institute of Public Accountants (IPA)
Certified Public Accountants (CPA)
Association of Financial Advisers (AFA)
There are many more that have not been mentioned above as the list
would be too exhaustive. The ones selected above are ones you may
more commonly come across in the finance broking industry.
Finance Brokers
Historically, finance brokers were labelled into three distinct categories and
thus the term, ‘’Mortgage Broker’’ may be used as a term to differentiate
between what a mortgage and finance broker offer in terms of lending
support to their clients.
Mortgage Brokers – commonly provide support to clients for residential
property and personal debt refinancing/consolidation
Equipment and Asset Finance Brokers – more commonly provide
support to business or self-employed clients with asset and equipment
finance requirements. They may also offer personal finance on items
such as motor vehicles.
Commercial Finance Brokers – commonly assist with predominantly
business lending and commercial property finance.
However, mortgage and finance brokers may also choose to offer lending
and lease support in one or several particular areas or demographic. This is
to ensure that they are meeting all their clients financing requirements.
Having a diversified offering is a key focus for many brokers and
aggregators with industry training and support becoming more readily
available. Especially, for mortgage brokers where traditionally they could
not achieve lender accreditations from commercial lenders, who instead
offered an internal specialist referral mechanism for commercial and
equipment finance requirements.
http://www.mfaa.com.au/
http://www.fbaa.com.au/
http://www.cafba.com.au/
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Learning Guide V3.2 © AAMC Training Group 27
Aggregators
Aggregators act as an intermediary between lenders and Finance
Brokers. Many brokers join an aggregator to access their wide panel of
available lenders, take advantage of sophisticated business resources
and marketing power. Aggregators often provide a range of other
services to brokers such as branding, software and technology, training,
compliance and risk management, marketing and lead generation,
general business support and back office administration. Their software
and technology systems provide the capability to complete loan
comparisons, loan lodgement, CRM management and marketing
capability. They may act as the licensee of an Australian Securities
Investments Commission (ASIC) approved Australian Credit Licence
Holder (ACL) and provide the opportunity for a the broker to join as an
Authorised Credit Representative (ACR) of their licence. However, some
brokers holding their own licence and operate via an aggregator due to
reduced ability to obtain a direct accreditation with many lenders and
the advantages as mentioned above.
Whether the individual is joining as part of the aggregator licence as an
ACR or as an individual licence holder (ACL), the aggregator will
complete in-depth interview and analysis of the individual. As the
licensee the aggregator is responsible for ensuring the individual has
adequate systems, resources and training to act compliantly and
professionally as part of their group. Whilst the aggregator has more
direct responsibility for those operating under their own licence, there
are almost equal responsibilities for ACL’s who are accessing services via
their business platform. The aggregator will perform regular audits to
ensure the individuals are adhering to their compliance standards.
Aggregators generally charge a fee for their services which is paid at the
settlement of each loan settled by the broker. These fees may be a
percentage of the commissions received by the lenders or capped
monthly/annual fee or a combination of both. The type of service,
support and business model they offer will vary and associated costs
commensurate to the level of support the individual desires. There are
many aggregators in the Australian market offering varied business
models and services. The common options for aggregation are briefly
detailed below:
Own Branding – joining directly as an individual member and operating
under your own brand as a small business owner
Franchise Model – allows the broker, as a small business owner, to use
the licensor’s brand and method of doing business to distribute
products or services.
Aggregator Branding (non-franchise) – allows the broker to use the
licensor’s brand and method of doing business.
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There is also the option to join an established broker business as an
employee or contractor under any of the above models.
Sub-Aggregation
Whilst there are several options of direct membership of an aggregator,
there are also many options to join a sub-aggregator. Sub–aggregators
are members of a head aggregator either as an ACR or ACL. They are
often referred to as being smaller or more boutique, offering new to
industry brokers additional services such as; mentoring and one to one
business support.
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Learning Guide V3.2 © AAMC Training Group 29
Example Flowchart 1: Franchise Broking Model
New Enquiry
Student holds FNS40815 Certificate IV in Finance and Mortgage
Broking or FNS50315 Diploma of Finance and Mortgage Broking
Management
NO
YES
Complete Qualification Franchise BDM will meet with candidate and
complete their own due diligence, including potential
interview and review of business plan
Candidate will need to provide details of
business entity they wish to operate under
Company Sole Trader
Franchise company provides relevant forms,
Franchise Agreement and Disclosure document
Franchise company provides relevant forms,
Franchise Agreement and Disclosure document
Candidate signs to confirm receipt of Disclosure Document.
Must then wait 14 days before signing Franchise Agreement
After 14 days have elapsed, candidate executes Franchise
Agreement and other documents and returns them along
with supporting documents including police and credit check
Candidate finalises PI Insurance and joins industry body
(either MFAA or FBAA) and AFCA
If new to the industry, candidate needs to engage a Mentor*
Candidate is registered as a Credit Representative by ASIC
under the Franchise’s Credit Licensee
Candidate completes Lender Accreditation Forms
Franchise company processes completed Accreditation Forms
*Some franchise
companies may have
special conditions for
new to industry
* Please note this is an example only and there may be a different process for each franchise model
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30 © AAMC Training Group Learning guide V3.2
* Please note this is an example only and there may be a different process for each franchise model
Example Flowchart 2: Own/Aggregator Brand Model
Enquiry
Student holds FNS40815 Certificate IV
in Finance and Mortgage Broking
BDM to request company details Complete Qualification
NO YES
BDM to request company details
Relevant Credit
Representative Forms
& Agreement
Admin to Prepare
Agreements
Relevant Credit Representative
Form & Agreement
Broker to sign Agreements, supporting
documentation & forms
Documents Check
Does the Broker have AFCA Membership? Complete AFCA Membership
YES
Does the Broker have PI Insurance? Arrange with relevant provider
YES
Does the Broker have Association Membership? MFAA, FBAA and/or CAFBA and
complete relevant training
Does the Broker have a police check & Veda file?
Broker to acquire a police check
and Veda file.
YES
Broker to provide an up to date resume
YES
Has the broker got Finance/Banking Experience? NO Is the Broker a Mentee?
YES
Broker to provide
a Mentor Letter
Broker to sign Lender
Accreditation Forms.
Complete Broker Accreditation Form
Admin to Process Lender Accreditations
NO
NO
NO
NO
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Financial planners
Financial planning is a holistic process whereby a client’s total position,
both financial and non-financial, is examined and a set of actions or
plans is put in place which, once implemented, will assist in meeting the
client’s ultimate goals and objectives.
Based on this definition, financial planners provide a wide range of
services including preparing comprehensive financial plans which
evaluate a client’s total situation, or alternatively focus on a specific
concern, such as managing a client’s investments and retirement
planning. Financial planning covers areas
such as:
Risk management and insurance planning – managing cash flow risks
through sound risk management and insurance techniques
Investment and planning issues – planning, creating and managing
capital accumulation to generate future capital and cash flows for
reinvestment and spending
Retirement planning – planning to ensure financial independence at
retirement
Tax planning – planning for the reduction of tax liabilities and the
freeing up of cash flows for other purposes
Estate planning – planning for the creation, accumulation, conservation
and distribution of assets
Cash flow and liability management– maintaining and enhancing
personal cash flows through debt and lifestyle management.
Dealer groups
A dealer group is defined as: “the distribution arm typically of funds
management groups or banking institutions, designed to offer investors
financial planning services. Dealer groups often employ large numbers of
financial planners, offering them training, licensing and support services.
They also often provide financial planners with lists of recommended
investment products from which to service their clients”.
Not unlike aggregators, dealer groups may be the licensee of an
Australian Financial Services Licence (AFSL) and authorise independent
Financial Advisers, known as Authorised Credit Representatives (ACR’s),
under their licence. This allows those advisers authority to offer clients
advice on a range of products, as authorised under that licence.
Stockbrokers
Stockbrokers act as agents for investors in the buying and selling of
stock market securities. Stockbrokers are the only entities permitted to
operate in stock exchange markets and are authorised to access the
trading and settlement systems of a stock exchange.
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Accountants
Accountants provide taxation services and advice to clients. All
accountants who wish to provide financial product advice are required to
either hold an Australian Financial Services License (AFSL) or become a
representative of a licensee. There are however, certain concessions
which are in force for accountants who are registered tax agents. As part
of the Future of Financial Advice (FOFA) reforms Accountants offering
limited advice in Self-Managed Superannuation (SMSF), where they are
assisting a client to acquire or depose of an interest in an SMSF, must
either hold an ASFL Licence or be a representative of a licensee.
Actuaries
Actuaries are financial services professionals who specialise in numerical
analysis and design for insurance products, though some may diversify
into other areas such as securitisation. Although they are not usually
associated with the provision of investment advice, they may be licensed
to do so.
Solicitors
Solicitors have always been exposed to the financial service industry but
predominantly in the areas of mortgage lending and real estate. Whilst
solicitors may be allowed to provide investment advice, which is merely
incidental to their profession, they are required to be licensed or
authorised if they give financial product advice. Solicitors are commonly
used in the financial services industry for conveyancing and legal advice.
Real estate agents
Real Estate Agents act as the conduit between the buyer and seller of
real property.
The role of an estate agent is to:
act on behalf of owners and landlords to arrange the sale or lease of
property including houses, buildings, factories, shops, farms, land and
businesses
act on behalf of buyers when engaged as a buyers agent or advocate to
negotiate the purchase of property
provide market appraisals of properties and businesses for clients
negotiate the sale or lease of properties and businesses
collect rents and manage rental properties.
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Buyers agents
A buyer’s agent specialises in scoping out and evaluating properties on
behalf of their client, a buyer (i.e. a purchaser).
Why do people use buyer’s agents?
Industry knowledge and sometimes access to properties that may not
be advertised
Time saving – having a professional do the groundwork on their behalf
(potentially saving on a lot of open homes and lost weekends
searching)
Investment knowledge of potential capital growth and rental yields
Expert negotiating and bidding skills.
Difference between a buyer’s agent and a real estate agent
In a nutshell, the difference between a buyer’s agent and a real estate
agent is their client. A real estate agent’s client is the seller (or vendor)
of the property, whereas the client of the buyer’s agent is, as the name
suggests, the buyer (or purchaser). The real estate agent is paid by the
seller/vendor to market and sell the property. The buyer’s agent is paid
by the buyer to find a property (or undertake a range of services
associated with that). They also have different standards of education
and must be licenced from the Office of Fair Trading of the state or
territory in which they work.
Other brokers
There are a range of brokers who are specialists and may be licensed
only in their own area of expertise. They include insurance brokers,
investment brokers and superannuation consultants.
Other industry groups and organisations
Within the finance broking industry there are ‘representative groups’
such as:
IFBF
The Independent Finance Brokers Forum (IFBF) is a not for profit
organisation, run by volunteers for the betterment of the industry as a
whole. Monthly meetings, held on the last Friday of the month between
February and October and recognised by both of our industry
associations for the awarding of CPD, focus on three main points;
education, compliance and diversification.
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AELA
Australian Equipment Lessors Association (AELA) is the ‘peak
professional body’ of the lease and equipment finance industry, with its
mission being to represent and serve the interests of the equipment
finance industry. The Association provides technical and legal
information services to members, liaison and ‘lobby’ functions in respect
of governmental/regulatory dealings, and it facilitates various education
programs for members and their employees.
ABA
With the active participation of 24 member banks in Australia, the
Australian Banking Association (ABA) provides analysis, advice and
advocacy for the banking industry and contributes to the development of
public policy on banking and other financial services.
The ABA works with government, regulators and other stakeholders to
improve public awareness and understanding of the industry’s
contribution to the economy and to ensure Australia’s banking
customers continue to benefit from a stable, competitive and accessible
banking industry.
The professional collections industry
Debt collection is a legitimate and necessary business activity where
creditors and collectors are able to take reasonable steps to secure
payment from consumers who are legally bound to pay or to repay money
they owe. It is important that any organisation involved in recovering debt
is aware of their legal obligations. The law requires debtors and third
parties to be treated fairly, respectfully and with courtesy.
The debt collection industry is vital to the effective and efficient
operation of the Australian economy. Not only does it employ thousands
of Australians, but it also allows businesses to better manage cash flow.
It provides an efficient way of collecting debts that may otherwise result
in increased prices for goods and services.
Mercantile agents
Mercantile agents or debt collectors are business which specialise in the
recovery of overdue debts by acting as agent for the original creditor,
collecting the debt on their behalf (contingent debts).
Mercantile agents but use knowledge and skill to lawfully obtain
payment on the client’s behalf.
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Debt buyers
Debt buyers are companies which purchase delinquent debts from a
creditor for a fraction of the face value of the debt. The debt buyers can
then collect the debts, utilise the services of a collection agency, repackage
and resell portions of the purchased portfolio or any combination of these
options.
Most of the major banks and finance companies in Australia sell delinquent
consumer debt, as do the major telecommunications and utility companies.
The ACCC recognises the responsibilities of original creditors in addition
to third party collectors to enhance debt collection practices. However, it
is the ACCC’s view that original creditors cannot not wash their hands of
the responsibilities of debts once they have been sold.
The role of the Reserve Bank of Australia (RBA) in
Australia’s economy
The RBA operates a substantial banking business and provides a range
of financial services, including Australia’s monetary policy. It is the main
tool for controlling growth as it affects the flow of money through the
economy.
The RBA prefers that the economy does not grow too quickly. Historically,
growth that is too fast has actually destabilised economies, by introducing
inflationary pressures that quickly reduce the level of real wealth in the
economy. Loans increase the speed with which money is being used. More
loans make for a faster flow of money through the economy.
Interest rates are the price of borrowed money. The theory of demand
and supply dictates that higher rates will reduce demand for borrowings.
In practice, this is what occurs. By manipulating the cash rate, the RBA
is able to influence most interest rates in the economy, and thereby
influences the demand for borrowing. If the RBA increases interest
rates, then demand for loans will fall. If the RBA reduces interest rates,
then demand for loans will increase.
In implementing their monetary policy, the RBA take care not to raise
interest rates too sharply. Doing so would slow the flow of money
through the economy, which might reduce the level of economic growth,
causing reduced profits and increased unemployment. As can be
imagined, the RBA has to walk quite a delicate line in its manipulation of
interest rates. If rates are too low, inflation can rise; if rates are too
high, then the economy can slow.
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Prevailing interest rates
Prevailing interest rates tend to dominate most of the types of
borrowing made by investors. A prevailing interest rate is one that
borrowers and lenders have no choice other than to accept. An example,
is the home lending market in Australia. Because there are a relatively
large number of home loan lenders, borrowers in this market have a
reasonable range of choice between lenders. As a result, lenders who
are offering higher interest rates than their competitors will find that
they cannot attract significant business. They therefore have to set their
interest rates at a level similar to their competitors. This effectively puts
a ceiling on the interest rates they offer.
While there will often be some small discrepancy in the published
interest rates of various lenders, this discrepancy is often offset by fees
charged by the lenders, or services they offer. Lower rate lenders tend
to offer fewer services and will often charge higher fees. The effect of
this is that the effective cost of borrowing for a borrower does not vary
much between the various lenders.
Most lenders are also borrowers. They tend to borrow money in one
market for lending, at an increased rate in another. For example, a
lender may issue a bank bond at an interest rate of 3 per cent, and then
lend the money raised at an interest rate of 5 per cent. The 2 per cent
differential is used to pay for other costs (staff, admin, marketing etc.)
and provide a profit margin to the lender.
As well as the upper limit for lending rates imposed by ‘the market,’ there
is also a minimum rate which the lender cannot afford to go below. This
minimum rate will be the lender’s own cost of borrowing (including all
business costs), plus their required profit margin. In the home loan market,
most lenders source their funds from similar places, meaning that they are
paying similar interest rates to each other. Profit margins are also quite
similar, as the lenders often use similar processes. Thus, the lenders have
similar minimum interest rates which they will charge to borrowers.
The effect of these limits on the minimum and maximum price is that
the interest rate offered by all the lenders is similar. Thus, borrowers
have no choice but to access borrowings at this rate – there is not really
a cheaper option to be had. Borrowers cannot influence the rate and
neither really can lenders. This rate is then said to be the prevailing one.
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The RBA and the prevailing interest rate
In Australia, the most significant individual participant in loan markets is
the Australian Government. The Reserve Bank of Australia acts as the
agent for the Government in these loan markets.
The Government borrows via one of two means: treasury notes, which
are repaid within a year, and treasury bonds, which are repaid over
periods of up to ten years. The Government identifies lenders by putting
its treasury notes and bonds out to tender. Given who it is, the
Government probably represents the safest loan a lender can make.
Therefore, the rate at which lenders make loans to the Government –
which is set by the price which they pay for the treasury notes and
bonds – is taken as a basis for most lending in the country. This is
particularly the case for treasury notes.
The target cash rate
As the Government’s agent, the RBA uses its issue of treasury notes to
achieve what it calls its target cash rate. Due to its size, the RBA can
almost always achieve this rate.
The Australian Federal Government is probably the most secure
borrower in the country. Therefore, the rate of interest it pays on its
treasury notes represents the lowest risk rate of return that a lender can
achieve on their money. Lenders use this rate of return as the basis on
which they charge interest on their other loans.
All non-Government loans are more risky than those to the Government,
so lenders will typically charge rates higher than the target cash rate on
all non-Government loans. If they weren’t able to charge a higher price,
there would be no point in making the riskier loan.
For example, suppose a lender has $100,000 available to lend. They are
looking for the maximum return on this amount. Say the target rate set
by the Government is 5 per cent. Therefore, the lender could earn a 5
per cent return on their investment with very little risk, by buying a
treasury note from the Government. If another borrower, for example
an individual investor looking to purchase a property, wants to borrow
the $100,000, they also offer the lender 5 per cent interest. The lender
has two choices, both of which pay 5 per cent; the low risk Government,
or the higher risk individual.
The lender will choose the lower risk option every time. The only way
that the individual can attract the $100,000 is to offer an increased
interest rate. Say the individual is prepared to pay 7 per cent. The
lender now has two choices: the Government at 5 per cent, or the
individual at 7 per cent. Because of the potential for higher return, the
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38 © AAMC Training Group Learning guide V3.2
lender might choose the individual borrower, even though the individual
loan has greater risk.
Loans, for which the risk is considerably greater, such as unsecured
loans and credit card debt, attract relatively high rates of interest.
Loans, for which the risk is not substantial, such as home loans secured
against property, attract relatively low rates. But loans to individuals will
always be at rates higher than loans to Government.
In this way, the target rate set by the RBA has a flow on effect on the
prevailing interest rates in the retail borrowing markets available in Australia.
The rate paid by the Government represents the low risk return available to
lenders. All higher risk loans will require a higher rate of interest.
Investors and interest rates
It is common for investors to also have debt, which may or may not be
directly linked to the specific investment. The financial position of all
borrowers is affected by changes in interest rates. Investors are no different.
The effect of interest rates varies from investor to investor. Broadly, the
effect will depend on whether the investor is a net borrower or a lender.
Investors are borrowers if the funds they use to invest are financed by
borrowing. For example, an investor who borrows to buy a property is a
net borrower (presuming they have no other investments).
Investors are lenders if the money they invest is used by someone else
to make further investment. For example, an investor who owns a fixed
rate investment in a cash management fund has in effect lent their
money to the operator of the fund. The operator then uses the monies it
receives from investors to make its own investments.
In addition, the specific effect of interest rates on an investor’s situation
is affected by a number of variables, including their tax position,
whether the debt is used to purchase enduring assets or consumables,
whether enduring assets are for personal or investment use and the size
of their debt relative to their portfolio.
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Section 2 Industry guidelines, procedures
and
legislation
There are many areas of law that govern the business activities of
financial services providers. Regulations are constantly being updated
and consequently changing. Financial service providers, including
financial institutions and intermediaries are expected to be up to date at
all times. With the advent of internet-based information it is now much
easier to access information which in the past would not have been
readily available. Therefore there is no longer any excuse for anyone to
be unaware of their
obligations.
This section deals with the regulatory framework, which affects the
practices of the financial services industry and governs the business
activities of professionals who work within this industry. This framework
has been established by a number of federal and state legislations and
statutes. It also examines the roles and responsibilities of various
statutory and industry bodies which participate in financial services and
their impact on the business activities…
The following table provides some websites for specific legislations and
codes of practice, that you may wish to access.
Regulation, legislation
or code
Source Websites
Anti-discrimination legislation Australian Government www.ag.gov.au
National Consumer Credit Code Australian Securities and
Investment Commission
www.asic.gov.au
Privacy Act The Office of the Federal
Privacy Commissioner
www.oaic.gov.au
Competition and Consumer Act
2010
ACCC www.accc.gov.au
Corporations Act Australian Government www.comlaw.gov.au
Financial Services Regulation Australian Securities and
Investment
Commission
www.asic.gov.au
Taxation Law Australian Taxation Office www.ato.gov.au
Australian Accounting Standards Australian Accounting
Standards Board
www.aasb.gov.au
Superannuation Industry
(Supervision) (SIS) Act
APRA www.apra.gov.au
Code of Banking Practice 2003 Australian Bankers Association www.bankers.asn.au
MFAA Code of Conduct MFAA www.mfaa.com.au
FBAA Code of Conduct FBAA www.fbaa.com.au
CAFBA Code of Conduct CAFBA www.cafba.com.au
http://www.oaic.gov.au/
http://www.accc.gov.au/
http://www.comlaw.gov.au/
http://www.asic.gov.au/
http://www.ato.gov.au/
http://www.aasb.gov.au/
http://www.apra.gov.au/
http://www.bankers.asn.au/
http://www.mfaa.com.au/
http://www.fbaa.com.au/
http://www.cafba.com.au/
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Key components of the compliance framework
The Australian legal framework impacts on the finance industry at
different levels through Parliament, government offices, the courts,
professional bodies and businesses themselves, and is known as the
‘compliance framework’. The compliance framework operates in five tiers:
Legal
Regulatory
Judicial
Professional
Business.
The compliance (regulatory) framework
The regulatory framework is the system of legislation, common law and
government oversight for the financial services industry. It comprises
two parts:
The Respective Federal or State Parliament
The corresponding regulators.
Regulators at the federal level include the following:
Australian Securities and Investment Commission (ASIC)
Australian Prudential Regulatory Authority (APRA)
Reserve Bank of Australia (RBA)
Australian Securities Exchange (ASX).
Australian Transactions and Reports Analysis Centre (AUSTRAC)
The Privacy Commissioner
Foreign Investment Review Board (FIRB)
The Australian Human Rights Commission (AHRC)
Australian Competition and Consumer Commission (ACCC)
The Royal Commission into Misconduct in the Banking, Superannuation
and Financial Services Industry
The Financial Adviser Standards and Ethics Authority Limited (FASEA)
We have already covered these in some detail in the previous section.
Regulatory bodies have a wide range of tasks related to a wide range of
issues. These tasks cover the governance and the implementation of the
requirements of the acts and regulations. Some provide guidelines f
or
practice. For example, ASIC publishes a large and growing number of
regulatory guides. Many also investigate breaches of the regulations and
unlawful activities, and prosecute offenders accordingly.
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The judicial tier of compliance
The judicial tier of compliance is enforced through the courts at Federal
and State levels. There are also two levels of
activity:
Government regulator prosecutions for breaches of the respective laws
and regulations
Civil lawsuits in which aggrieved clients seek restitution.
In the case of civil lawsuits court decisions become established as
precedents. Such precedents become standards for practice.
Common law
Common law is often referred to as ‘judge-made law’ or ‘case law’. This
reflects the fact that common law has been established over many
years
by the accumulation of judgments made in Australian and other relevant
courts. In making judgments, judges will look to precedents from case
law history.
In Australia, there are two systems of court: State and Federal.
State: While each state has a slightly unique hierarchy most contain
three levels of court. The most junior court is the ‘magistrates’ court’
which deals with less serious cases but is also the court within which a
decision is made as to whether more serious cases should proceed to
more senior courts. The ‘middle tier’ of state courts is known variously
as a ‘county’ or ‘district court’. It deals with more serious cases than the
magistrate’s court. The top level of state courts is the ‘supreme court’.
This court hears serious trials and also hears appeals against decisions
in any of the three levels of court.
Federal: Australia has a system of federal courts. These courts are
usually designed to deal with matters that are not covered by state
courts. In addition, the Australian high court can hear appeals from any
other court (state or federal) in Australia.
Trust law
A trust is a legal entity which exists to allow a separation between the
ownership of an asset and the benefits of the asset. In a trust, the
assets are owned by a trustee, and the benefits flow to beneficiaries.
Trusts are complex legal structures.
Legal advice should always be sought regarding the implementation or
use of a trust.
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The settlor
This is the person(s) who creates the trust. Grantor(s) is a common
synonym.
The appointer
This is the person who can appoint a new trustee or remove an existing
one. This person is usually mentioned in the trust deed.
The protector
A protector may be appointed in an express, inter vivos trust, as a
person who has some control over the trustee- usually including a power
to dismiss the trustee and appoint another.
The trustee
The trustee is the legal owner of the assets of the trust. The trustee also
manages these assets. The trust deed dictates how the assets should be
managed, and how income of the trust should be distributed. There is
often more than one trustee.
The beneficiary
Beneficiaries are persons to whom benefits of the trust are owed. These
benefits can be either income distributions (that is, money generated by
the trust while it retains ownership of its assets) or capital distributions
(that is, money generated by the trust upon the sale of assets). The
trust deed dictates how benefits accrue to beneficiaries.
In managed investing, investors who buy units purchase the right to
become a beneficiary of the trust. They are conventionally referred to as
“unit holders” rather than beneficiaries.
Types of trusts
There are several types of trusts which will be explored in section 2 of
this course. The most common type of trust is a discretionary family
trust. Other types include:
Unit
Testamentary
Hybrid
Business
Spendthrift
Special disability
Family lineage
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Negligence and duty of care
The law of negligence is of particular importance to all providers of
professional advice.
The law of negligence essentially states that those qualified to offer credit
(finance brokers, lenders) or investment advice (financial planners),
‘Advisers’ have a duty to ensure that any advice or information they
provide, is given with appropriate care. This is known as a ‘duty of care’.
It is highly important that the advice or information given is accurate and
that there are reasonable grounds for providing the advice.
Whether the advice was ‘reasonable’ is assessed from the client’s point
of view. The ‘reasonableness test’ assumes that the adviser has taken
all necessary steps to ascertain a comprehensive understanding of the
client’s situation. Advisers who fail to take sufficient steps in this regard
breach this duty. Breaches may leave advisers liable to be sued.
The duty of care is greatest for someone ‘holding themselves out’ (that is,
advertising or describing themselves) as a professional provider of advice.
Duty of care is owed to anyone who can “reasonably” be regarded as
likely to use the information. In most cases this will be the client, but it
may also be their immediate family or business partners if advice is
being offered regarding a business requirements.
Particular care needs to be taken when placing advice or
information
into the public domain (for example, advertising). In this case, a duty of
care could be owed to anyone who can reasonably be foreseen to have
access to the advice or information.
To sue an adviser under the laws of negligence, a client needs to have
suffered some loss as a result of acting on the advice or information
given to them. ASIC may also take disciplinary action.
Contract law
A contract is an agreement between two parties. When two parties make
an agreement, they are obliged to perform all actions under the
agreement. In commercial arrangements, the agreement is usually that
one party will provide a good or service and the other will provide money.
However, money does not need to be involved for a contract to exist.
Contractual obligations must be met. The only way in which the terms of
a contract can be altered is with the agreement of both parties. When
two parties agree to alter a contract, they are in effect establishing a
new contract.
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In order to be considered to be a contract, an agreement must have the
following components:
An offer – one party must offer to enter into a contract with the other
An acceptance – the other party must accept the offer
Legal capacity – both parties must be legally allowed to enter into a
contract (for example, both must be of legal age)
Lack of ‘vitiating’ circumstances – vitiating circumstances are those
which would mean that one party did not have a real choice of entering
in to the contract (for example, if a person is told they must enter into
a contract, under pain of some penalty, then the contract may be
voided
Consideration – consideration is the (partial or complete) performance
of an obligation under a contract. Once one party has provided some
consideration (for example, paying a fee in advance), then they are
entitled to enforce their rights under the contract.
Contrary to popular opinion, contracts do not necessarily require that
the parties sign a document. Contracts can be formed in the absence of
a signed document.
Many of the commercial implications of contract law have been
consolidated into the Competition and Consumer Act 2010.
In particular, Section 51 contains certain rules which all commercial
operators in Australia are obliged to follow.
These rules include many of the traditional elements of the common law
of contract. These rules were brought into legislation to allow for a wider
range of penalties to be applied, and to allow governments to become
involved when the act is breached. Typically, only the parties to the
contract can sue for breach of that contract. By legislating, the
government takes on the right to also lay charges in situations where
the law is breached.
Activity 3 – Contracts
What is a contract and what are its components?
Check the model answers section
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The professional tier of compliance
The professional tier of compliance is exercised through the various
professional bodies which have been established within financial services.
Some are industry specific whilst others provide a much broader coverage.
These professional associations include, but are not limited to:
The Stockbrokers Association of Australia (SAA)
The Investment and Financial Services Association (IFSA)
The Australian Financial Markets Association (AFMA)
The Association of Financial Advisers (AFA)
The Financial Planning Association of Australia (FPA), the peak
professional bodies for Australia’s financial planners
The National Insurance Brokers Association (NIBA), which represents
the interests of the insurance broking sector in Australia.
The Australasian Compliance Institute (ACI)
The professional bodies for the mortgage and finance industries are the
Mortgage Finance Association of Australia (MFAA), the Finance Brokers
Association of Australia (FBAA) and The Commercial and Asset Finance
Association of Australia (CAFBA) peak bodies for Australia’s finance and
mortgage brokers.
Professional associations work in consultation with all the other levels of
compliance to set and defend standards of practice that are based on
the requirements of the law and the regulations. Consequently they can
be very influential in lobbying respective governments and regulators
with regard to the forming of laws, the framing of regulations and the
decisions of the courts.
Professional Associations contribute significantly as Industry Associations
establishing ethical work standards which are exercised through their
respective codes of conduct.
The Corporations Act 2001
The Corporations Act is the principal legislation regulating companies in
Australia. It regulates matters such as the formation and operation of
companies, duties of officers, takeovers and fundraising. It also makes
provision in relation to financial
products and services.
Misconduct in the Banking, Superannuation and Financial
Services Industry
A Royal Commission was established on 14 December 2017 to consider
the conduct of banks, insurers, financial services providers and
superannuation funds (not including self-managed superannuation
funds). All Australians have the right to be treated honestly and fairly in
their dealings with the financial services industry).
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The Financial Services Reform Act 2001
The Financial Services Reform Act 2001 (FSRA) was created to improve the
regulation of the financial services industry. The Act made extensive
changes to the existing Corporations Act 2001 and profoundly affects the
activities of all financial advisers/planners in the provision of advice and
anyone who is involved with what in the act defines as “financial products”.
Key sections relating to the definitions of financial products, financial
investments, financial risk, financial service and financial product advice
are found in Chapter 7 of the Act. The main object of this chapter is to
promote:
Confident and informed decision making by consumers of financial
products and services while facilitating efficiency, flexibility and
innovation in the provision of those products and services
Fairness, honesty and professionalism by those who provide financial
services; Fair, orderly and transparent markets for financial products
The reduction of systemic risk and the provision of fair and effective
services by clearing and settlement facilities.
This is referred to as Financial Services Regulation (FSR).
FSR is important for finance brokers to understand due to the comparative
role of a financial planner (adviser) and relative regulation framework.
Licensing
In Australia, financial investment and insurance advice can only be
provided by the holder of an Australian Financial Services Licence
(AFSL). This requirement is detailed in Section.911A (1) of the
Corporations Act 2001, which states:
“… (a) person who carries on a financial services business in this
jurisdiction must hold an Australian financial services licence covering
the provision of the financial services.”
There are some exceptions to this requirement, most of which are very
limited and specific. The main exception is where the individual is
engaged as the representative of a licence holder.
Who needs to be licensed?
It is illegal to provide financial services to retail clients in Australia
without an Australian Financial Services Licence. Section766A of the
Corporations Act 2001 defines a financial service as follows:
Providing financial product advice (see section 766B); or
Dealing in a financial product (see section 766C); or
Making a market for a financial product (see section 766D); or
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Operating a registered scheme; or
Providing a custodial or depository service (see section 766E); or
Engage in conduct of a kind prescribed by regulations made for the
purposes of this paragraph.
A person doing one or more of these things is providing a financial
service, and must be licensed. Note that the definition includes the
provision of financial product advice.
Section 763A of the Corporations Act 2001 defines a financial product as
a facility through which, or through the acquisition of which, a person
does one or more of the following:
Makes a financial investment (see section 763B);
Manages financial risk (see section 763C);
Makes non-cash payments (see section 763D).
Note that this definition involves facilities through which a person makes
a financial investment (for example, the purchase of units in a managed
fund, or the purchase of a share) or through which a person manages
risk (for example, the purchase of an insurance product or the purchase
of certain types of derivatives).
You may be surprised to learn that certain facilities are not classified as
financial products, at least for the purposes of the Corporations Act.
Within finance and investment, property is perhaps the main class of
product which is not defined as a financial product. Similarly, credit
facilities such as mortgages are not classed as financial products for the
purposes of the provision of financial services by licensed (AFSL)
advisers. Credit facilities are covered under the NCCP Legislation and
Australian Credit Licensing (ACL).
What is financial advice?
Financial product advice as a recommendation or a statement of opinion,
or a report of either of those things, that:
Is intended to influence a person or persons in making a decision in
relation to a particular financial product or class of financial products, or
An interest in a particular financial product or class of financial
products; or
Could reasonably be regarded as being intended to have such an
influence.
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ASIC RG 175 describes two broad types of financial advice:
Personal advice is any advice that takes into account the recipient’s
personal circumstances. This does not mean all of a client’s
circumstances – if just one aspect is considered, then the advice may
well be classed as personal.
General advice is advice that is not personal. That is, it is still
intended (or could reasonably be regarded as being intended) to
influence decision making, but it has not taken into account the
recipient’s personal circumstances. General advice should always be
issued with a warning.
Depending what type of advice is being given, the licensee or their
representative must meet certain conditions. The following table shows
the conditions which must be met for each type of advice. The table has
been adapted from RG175.
Obligation Personal
Advice
General
Advice
Provision of Financial Services Guide Yes Yes
Provide General Advice Warning No Yes
Prepare and provide suitable personal advice Yes No
If applicable, warn client that personal advice is
based on incomplete personal information
Yes N/A
Provide a Statement of Advice Yes No
As outlined in the table, advisers must meet different conditions
depending on whether their advice is personal or general. Specifically, if
advice is personal, then it must be provided within a formal statement of
advice, and must be based on at least some specific research.
In addition to the above descriptions, RG 175 suggests that advisers use
the following series of questions to decide whether advice is personal or
general:
Was an offer to provide personal advice made (such as, through a
Financial Services Guide)?
Is there an existing client-adviser relationship in which personal advice
is given?
Did the client request personal advice?
Did the adviser request personal information from the client?
Was the advice directed towards an identifiable or named client?
Did the advice contain a General Advice Warning?
Does the advice appear to be personal in nature?
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Where an adviser is providing personal advice, it is imperative that they
collect sufficient information from their clients to support this advice.
Who provides the advice?
A financial adviser may be the licensee of and AFSL or an authorised
representative of a licensee.
When an individual or company acts as an authorised representative of
an AFSL holder, in the strict legal sense it is actually the AFSL holder
who provides the advice. This means that the AFSL holder is responsible
for this advice. This is the case even when the representative is acting
outside of the confines of its authority.
Disclosure required by an AFSL holder
The provision of information to clients is collectively referred to as
‘disclosure.’ The disclosure requirements for financial advisers are
detailed in ASIC RG 168. RG 168 nominates three specific documents
that must be provided to clients. These are:
A Financial Services Guide which provides a comprehensive description
of services offered by an adviser.
A Statement of Advice – details the personal advice given in a written
contract
A Product Disclosure Statement – details information regarding the
specific products being offered to the client
Future of Financial Advice
The FOFA legislation commenced on 1 July 2012. The legislation
amended the Corporations Act and introduced:
A prospective ban on conflicted remuneration structures including
commissions and volume based payments, in relation to the distribution
of and advice about a range of retail investment products.
A duty for financial advisers to act in the best interests of their clients,
subject to a ‘reasonable steps’ qualification, and place the best interests
of their clients ahead of their own when providing personal advice to
retail clients. There is a safe harbour which advice providers can rely on
to show they have met the best interest’s duty.
An opt-in obligation that requires advice providers to renew their
clients’ agreement to ongoing fees every two years.
An annual fee disclosure statement requirement.
Enhanced powers for ASIC.
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On 19 March 2014 the Australian Government introduced the
Corporations Amendment (Streamlining of Future Financial Advice) Bill
2014 (the Bill) into Parliament that outlined the following changes to the
FOFA reforms:
removal of the ‘catch-all’ element of the ‘safe harbour’ for the best
interests duty and further amendments to the best interests duty to
facilitate scaled advice
removal of the requirement for fee disclosure statements to be sent to
pre-1st July 2013 clients
removal of the opt-in obligation for ongoing fee arrangements entered
into after the commencement of the Amendment Regulations, and
exempting general advice from conflicted remuneration in some
circumstances.
Professional standards for financial advisers –
reforms
The Corporations Amendment (Professional Standards of Financial
Advisers) Act 2017 commenced on 15 March 2017. It introduced several
measures in the Corporations Act 2001 (Corporations Act) to raise the
education, training and ethical standards of financial advisers providing
personal advice to retail clients on more complex financial products.
Under the new requirements, all relevant providers must:
have a relevant bachelor or higher degree, or equivalent qualification
pass an exam
meet continuing professional development (CPD) requirements each
year
complete a year of supervised work and training (professional year) –
although this will not apply for individuals who are already relevant
providers before 1 January 2019
comply with a code of ethics and be covered by a compliance scheme
that monitors and enforces compliance with the code of ethics.
The Financial Adviser Standards and Ethics Authority Limited
(FASEA) was established on 11 April 2017 to set the education, training
and ethical standards of financial advisers, licensed under Australian
law. From 1 January 2019, only relevant providers who meet these
standards can call themselves a ‘financial adviser’ or ‘financial planner’
or similar terms Transitional arrangements apply to ‘existing providers’.
Refer to www.fasea.gov.au, for further information.
https://www.legislation.gov.au/Details/C2017A00007
https://www.legislation.gov.au/Details/C2017A00007
http://www.fasea.gov.au/
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National Consumer Credit Protection Act 2009
(NCCPA)
Recent reforms to consumer credit law have resulted in a single national
consumer credit regime governed by National Consumer Credit
Protection Act 2009 (Cth) (NCCP) which includes the National Credit
Code (NCC) as Schedule 1 to the Act. The NCC replaces previous state-
based consumer credit codes and the Uniform Consumer Credit Code
(UCCC) and it continues to apply to the conduct of Australian credit
licence holders. ASIC is responsible for administering the NCCP.
The NCC applies to credit contracts entered into on or after 1 July 2010
where:
the lender is in the business of providing credit
a charge is made for providing the credit
the debtor is a natural person or strata corporation
the credit is provided:
for personal, domestic or household purposes, or
to purchase, renovate or improve residential property for
investment purposes, or to refinance credit previously provided
for this purpose.
The NCC does not apply to certain loans, including: low cost short term
credit (less than 62 days), insurance premiums paid by instalments, bill
facilities and staff loans.
The Act includes:
a comprehensive national licensing regime, which imposes entry
standards for registration and licensing for persons involved in credit
activities and gives ASIC the power to refuse applications, or suspend,
cancel or ban entities who fail to meet legislated standards;
responsible conduct obligations, which establishes standards of
professional conduct for lenders, particularly the key obligation to
ensure that consumers are not provided with “unsuitable” credit
contracts or leases;
a civil penalty and consumer remedy framework that aims to
improve consumer protection by setting out sanctions and remedies,
including civil and monetary penalties;
a three-tiered dispute resolution process for credit issues that
allows a consumer access to (1) the credit service provider’s internal
dispute resolution process, (2) the ASIC-approved External Dispute
Resolution Scheme, and (3) all relevant Commonwealth, State and
Territory courts; and
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The National Credit Code (in Schedule 1 of the National Consumer
Credit Protection Act 2009) which contains requirements in relation to
the entry into, terms and enforcement of credit contracts and consumer
leases.
The Act also gave the Australian Securities and Investments Commission
(ASIC) the responsibility to oversee the regulation of consumer credit
and finance broking.
The NCCP licensing regime
Licensing under the NCCP is modelled on FSR, which has
licensees
(Australian Financial Services License or AFSL) and authorised
representatives. The credit licensing regime also has licences (Australian
Credit Licence or ACL) and authorised credit representatives (ACR or CR).
The NCCP requires people to be licensed who engage in the following credit
activities:
provide credit under a consumer credit
contract or consumer lease;
benefit from mortgages or guarantees relating to a credit contract;
exercising the rights or performing the obligations of a credit provider,
lessor, mortgagee or beneficiary of a guarantee;
assisting or suggesting a consumer apply for a credit contract or
consumer lease or an increase to a credit limit;
acting as an intermediary to secure provision of a credit contract or
consumer lease for a consumer; and
providing other prescribed credit activities.
There are two broad categories of people engaged in credit activities who
need to be licensed;
Credit providers (lenders and lessors);
Providers of credit assistance, including intermediaries (such as; finance
brokers, aggregator, mortgage managers)
Provision of credit assistance
You are providing credit assistance to a consumer if, by dealing directly
with a consumer or consumer’s agent in the course of, or as part of, or
incidentally to a business carried on in Australia, you suggest that a
consumer or assist the consumer to:
apply for a particular credit contract or consumer lease with a particular
credit provider or lessor;
apply for an increase to their credit limit on a particular contract;
or you make a suggestion to a consumer that they consider borrowing
in order to finance a residential investment property, but not referring
to a particular credit provider or product would not be “credit
assistance”.
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However, if you suggested that the client approach a particular credit
provider about a specific product, this would be offering credit
assistance even if you are not arranging or helping with the credit
application.
What credit contract and consumer leases are covered by
the National Credit Code?
In order to for an individual to determine if they need to be licensed they
first need to determine if the credit activities they are engaging in are
covered by the code.
The National Credit Code applies only to credit that is:
provided to a natural person or strata corporation (i.e.; consumer)
provided wholly or predominantly for:
personal, household or domestic purposes; or
residential property investment
charged for or may be charged for, by the credit provider; and
provided in the course of carrying on a business of providing
credit in Australia or as part of, or incidental to, any other
business of the credit provider carried on in this jurisdiction.
What is a credit contract?
The contract under which credit is /or may be provided and is covered by
the National Credit Code. Common types of credit include; personal loans,
credit cards, small-amount loans, housing loans (including residential
investments properties), and contracts for the sale of goods or land by
instalments.
What is a consumer lease?
A consumer lease is a contract for the hire of goods that is entered into
by a natural person or strata corporation (i.e.; a consumer). For a
consumer lease to be regulated under the code:
the goods must be wholly or predominantly used for personal, domestic
or household purposes;
the fees and charges payable under the consumer lease must exceed
the cash price for the goods
the lessor must hire out the goods in the course of carrying on hiring
business in Australia, or as part of, or incidentally to, any other
business of the credit provider or lessor carried on in Australia; and
the borrower must not have the right or obligation to purchase the
goods.
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There are a list of credit and consumer leases and providers of client
advice that are excluded from regulation. This information may be found
by accessing – RG203 Do I need a credit licence.
Applying for and varying an Australian credit licence (ACL)
RG204 explains how to make an application for a credit licence using the
online application and the information required to do so. The person
applying for the licence must be a ‘fit and proper’ person, which means
that they should possess the knowledge skills and experience, are of
good character and have no other conflicts of interest, such as poor
credit or a criminal history.
Licence applicants must be able to demonstrate in their application, that
they can comply with these general conduct obligations. These
obligations cover:
broad compliance obligations – engaging in credit activities, efficiently,
honestly and fairly and complying with conditions of the licence and
relevant laws
internal systems – ensuring adequate risk management, conflicts of
interest processes and effective disputes resolutions processes
people involved in the business – must comply with credit legislation,
are competent to engage in credit activities and are adequately trained
There are a number of questions that will be asked in relation to the
above points as part of the application process along with supporting
evidence and documentation including;
a written plan (business plan) that documents arrangements and
systems;
the arrangements, or proposed arrangements that specify how often
compliance with procedures are monitored and reported on; and
people internal to the business who will be responsible for ongoing
monitoring and reporting.
Financial requirements are also part of initial compliance
requirements
of the licensee. Financial resource requirements will vary according to
the nature, scale and complexity of the credit activities the individual
and/or business engage in. ASIC require a licensee to:
(a) ensure access to sufficient financial resources to meet debts when
they become due and payable;
(b) have systems to plan and monitor cash flows in order to ensure
sufficient funds to adequately meet licence obligations; and
(c) have a system to demonstrate financial resources are being
monitored on a regular basis.
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Compensation and insurance arrangements for credit
licensees
The primary way to comply with having adequate arrangements in place
for compensating consumers is to have professional indemnity insurance
(PI insurance).
ASIC administer compensation requirements with the objective of
reducing the risk that credit licensees cannot meet claims for
compensation, due to insufficient financial resources.
Whether a PI insurance policy for credit licensees is adequate depends
on the amount and scope of cover and the relevant terms and conditions
of that policy
Who does not need to be licensed?
Representative of a licensed principal do not need to hold a licence to
engage in credit activities on their behalf. The main categories are:
employees and directors of the licensee or of a related body corporate
of the licensee; and
credit representatives authorised by the licensee
Responsible Managers
Responsible Managers must be nominated under the ACL. This can be
more than one person. This person is responsible for ensuring the
obligations under the licence are met and maintained. However,
ultimately the licensee is responsible for their own licence. The
Responsible Manager may be the licensee.
ASIC expect responsible managers to be directors with a governance
rather than management role (e.g. non- executive directors) or
company secretaries. Responsible Managers are required to meet the
competency standards to comply with licence requirements as detailed
in RG206.
Fit and proper person test
For each person identified as a responsible manager, additional
information is required to demonstrate that they have adequate
knowledge, qualification and experience to be competent to engage in
credit activities and be authorised.
ASIC also expect measures for monitoring and supervision will include
carrying out appropriate background checks before appointing new
responsible managers. These checks include referee reports, searches of
ASIC’s register of banned and disqualified persons bankruptcy and criminal
history checks.
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Credit Representatives
Credit representatives (CR or ACR) must be authorised in writing by the
licensee. The authorisation can cover some or all of the credit activities that
are covered by the licensee’s credit licence. Credit representatives may be
authorised by more than one licensee, if all licensee’s consent.
The relationship between licensees and credit representatives is depicted
in the following diagram.
If a licensee is intending to authorise a credit representative they
should:
Undertake background checks on that representative.
Ensure that they are adequately trained to engage in credit activities.
Ensure that they have current external dispute resolution (EDR)
scheme membership before the authorisation is
given.
Provide written consent to the appointment
Ensure they have adequate systems and procedures in place to monitor
and supervise their representatives.
Licensee
Credit Representative
(corporation)
Other representative
(employee or director)
Credit Representative
(natural person)
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1. PROCESS IMPLICATION
Background
checks
These checks could include referee reports, searches of our register of banned and
disqualified persons, and police checks
Training
requirements
Credit licensees must determine the appropriate training for their credit representatives
on appointment and while they continue to act as representatives, to comply with their
obligation to ensure that their representatives are adequately trained and competent to
engage in the credit activities. If industry standards exist for sectors of the credit
industry or for specific products, we expect that licensees will ensure their
representatives are trained at least to the level of the industry standard.
Credit representatives who provide mortgage broking services must:
have at least a Certificate IV in Financial Services (Finance/Mortgage Broking) by 30
June 2014, and
undertake 20 hours of continuing professional development each year
Membership to
an EDR scheme
If the credit representative does not have EDR scheme membership at the time of
authorisation the authorisation has no effect. The same would apply where they cease
EDR membership.
Written consent A licensee must give written notice to any person they authorise as a credit
representative. A licensee must also give its written consent to enable a body corporate
credit representative to sub-authorise a natural person to engage in credit activities on
behalf of the licensee. Both the credit representative and the licensee should retain a
copy of the consent for their records.
Monitoring and
supervising
Licensees have a continuous obligation to monitor and supervise their representatives to
ensure that they are adequately trained and competent to act as their credit
representative and are complying with the credit legislation. This can be done by
keeping track of your representatives –who they are, their roles, if they are acting
within the scope of what they have been authorised to do, and if they understand their
compliance arrangements. In turn, as the credit licensee, you should monitor your
representatives’ compliance and respond if they have compliance failures.
When authorising a credit representative the following needs to be
undertaken:
A notice of authorisation to the representative, in writing, from licensee
– (there is no prescribed form)
The credit activities to be undertaken must be specified in the written
authorisation (could be all, or only some, of the activities the licensee is
authorised to do), and
ASIC must be notified of the authorisation.
When notifying ASIC the following must be undertaken:
Credit Representative appointments must be notified to ASIC within 15
business days
Notice will need to be in the approved form (Form CL30)
Notice will need to specify:
Name and business address of Credit Representative
Date of appointment
Activities authorised
EDR Scheme
Details of any other licensee the Credit Representative represents.
ASIC will then allocate a unique Credit Representative number and
notify this to the Credit Representative and the appointer.
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Credit licensees have an obligation to take reasonable steps to ensure
their representatives comply with the credit legislation and are liable for
the conduct of their representatives.
General conduct obligations
A licensee or authorised representative will need to ensure they are
adhering to general conduct obligations imposed by the requirements of
their ACL as follows:
Compliance with the credit legislation and the conditions of their licence
That licensees have arrangements for compensating persons for loss or
damage suffered because of breaches of the relevant obligations under
the code by the licensee or its representatives
That clients are not disadvantaged by any conflicts of interest that arise
wholly or partly in relation to credit activities engaged in by the
registrant or their representatives
That internal systems and resources are adequate, and they are
documented, to properly operate as a credit business, and
That credit activities are engaged in efficiently, honestly and fairly.
This licensing requirement also applies to conduct engaged in before
entering into a contract with a
consumer.
ASIC policy on the general conduct obligations of credit licensees and
their representatives is set out in Regulatory Guide 205 Credit licensing:
General
conduct obligations.
A licensee may need to give information to ASIC at certain times, for
example:
If there are changes to any of the details set out in the Australian Credit
Register
If the Credit Licensee authorises a credit representative to engage in
credit activities on their behalf, and
If directed to give ASIC a written statement or obtain an audit report
about credit activities.
A licensee must also maintain financial records that correctly record and
explain the transactions and financial position of their business of
engaging in credit activities, and comply with requirements in relation to
the keeping and location of those records.
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Where ASIC asks for an audit report about credit activities, the auditor
must be provided with:
Access to financial records and other credit books, and
Any assistance and explanations in relation to the report.
The NCCP also requires credit licensees to have a written plan detailing
the arrangements and systems that are in place to ensure compliance
with their obligations. The plan should include details of who is
responsible for compliance, the time frames involved and associated
record-keeping and reporting. Important compliance measures which
should also be included are:
Compliance risks and their treatment, and
Identification and treatment of compliance breaches.
Having adequate technological and human resources is crucial to a
licensee’s ability to demonstrate they have the capacity to carry on a credit
business in full compliance with the law and to supervise representatives.
Failure to have enough resources may create an unacceptable risk that
may not comply with all of the obligations as a credit licensee.
Compliance
Compliance can be promoted by:
Practical checklists for the major day-to-day tasks that set out steps
that must be taken and timeframes for taking those steps
Ensuring that staff read the written plans of compliance arrangements
before they start to engage in credit activities
Running an induction program for all new staff, which includes training
on what your obligations are and your arrangements for complying with
them
Running internal training sessions on an ongoing basis to ensure staff
are kept up-to-date with obligations and compliance arrangements,
particularly when changes have been made, and
Testing whether employees understand your obligations and
compliance arrangements, and ask them whether they think the
arrangements are appropriate or could be improved.
The compliance plan can be used to complete a compliance certificate
which must be lodged with ASIC annually.
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Conflicts of interest
All credit licensees have a general conduct obligation to have adequate
arrangements in place to ensure that clients are not disadvantaged by
any conflict of interest.
Whether arrangements are ‘adequate’ will depend on the particular
circumstances in each case. For example, if a lender pays a higher rate
of commission for achieving certain volumes of sales, the licensee would
need to adopt adequate arrangements to ensure that borrowers are not
disadvantaged by the possible conflict of interest that arises.
These arrangements would need to ensure that staff or representatives
of the licensee are not favouring the achievement of volume targets
over the interests of the client. Such arrangements could include
compliance procedures designed to ensure that the representative does
not suggest a loan that is unsuitable for the borrower just because of
the incentive offered.
It is generally expected that when providing credit assistance in relation to
third party loans, representatives will have a suitably comprehensive
product list. ASIC also expects that this list will be thoroughly researched
and reasonably representative of the products available in the market.
For example, a mortgage broker has reviewed the home loan market and
has a comprehensive list of the products on which he/she can advise and
arrange which is well researched so that it is representative of the credit
market available to its clients. The broker can offer borrowers access to
products that will be competitive in price, although not necessarily the
cheapest available. The list needs to be sufficiently comprehensive to
ensure that the broker has made adequate arrangements.
Competence and training
Credit licensees have an obligation to ensure organisational competence to
engage in credit activities. ASIC assesses compliance with this obligation by
looking at the qualifications and experience of the people who manage a
credit business, and the people working within the business providing
support to compliance and/or third party services to clients. Setting
minimum qualifications and experience requirements for all key people
in the credit industry ensures that all providers of credit and credit
assistance activities have a minimum level of knowledge. Knowledge
should cover learning to ensure individuals can adequately perform their
role, act with duty of care, maintain currency of required regulations,
and ensure appropriate practice standards and understanding of
products and services.
ASIC RG206 outlines the minimum standards for credit providers and
credit assistance providers.
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Responsible Managers must have at least two years relevant
problem-free experience and either:
A credit industry qualification to at least the Certificate IV level; or
Another general relevant higher level qualification e.g. a Diploma of
Finance/Mortgage Broking Management or a university degree in a
financial discipline e.g. economics, commerce, business, accounting or
equivalent.
Representative Training
It is expected that the licensee ensure representatives are adequately
trained and competent to engage in the credit activities authorised by
the credit licence. Where industry training standards exist for particular
sectors of the credit industry or specific products, ASIC expect the
licensee will ensure that representatives are trained at least to the level
of the industry standard. In the case of third-party home loan credit
assistance providers, this is at least a Certificate IV in Finance and
Mortgage Broking.
Continued Professional Development
Responsible managers and credit representatives also need to undertake
a minimum of 20 hours of continuing professional development (CPD)
per year in relevant credit-related educational activities. However, the
related associations and or licensees (aggregators) may demand more
hours to be completed, as part of their own standards.
The CPD should include both product and industry developments related
to credit, and also compliance training in relation to new regulatory
requirements of the credit regime.
The following activities may be counted towards CPD:
Attendance at relevant professional seminars or
conferences
Preparation time for presenting at relevant professional seminars or
conferences
Publication of journal articles relevant to the credit industry
Viewing DVDs of recent (within the last year) professional seminars or
conferences (up to a maximum of 10 hours per year), and
Completion of online courses, tutorials and/or quizzes on recent (within
the last year) regulatory, technical or professional developments in the
industry.
Where industry training standards exist for particular sectors of the credit
industry or specific products, representatives must be trained at least to
the level of the industry standard. For example, there are specific industry
accreditations for specialist products such as; equity release products.
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Financial obligations
The senior person designated to be responsible for financial obligations
is known as the ‘financial manager’.
The minimum financial resource requirements include:
Access to sufficient financial resources to be able to meet all debts as,
and when, they become due and payable
Management of cash flows to ensure they are sufficient
Adequate financial resources to provide the credit services covered by
the licence and to carry out supervisory arrangements, and
Keep written records that demonstrate that financial resources are
being monitored on a regular basis
Responsible lending conduct obligations
What are the responsible lending conduct obligations?
Regulatory guide 209 (RG209), contains ASIC guidelines covering
responsible lending obligations for credit licensees. These conduct
obligations apply to credit providers (i.e. lenders, such as banks, credit
unions, small amount lenders and finance companies), lessors under
consumer leases and credit assistance providers (e.g. mortgage and
finance brokers). The primary obligation is to conduct an
assessment
that the credit contract or consumer lease is ‘not unsuitable’ for the
consumer. For more information the ASIC website is a useful source of
information at https://asic.gov.au
Who do the responsible lending conduct obligations
apply to?
These obligations apply to most holders of Australian credit licences
(credit licensees) and credit representatives. This includes:
credit providers and lessors, including assignees
credit assistance providers, like mortgage and finance brokers, but also
including:
product designers
mortgage managers, and
franchisees
credit representatives, including some franchisees, and
debt collectors.
A product designer is a credit licensee who is not the credit provider or
lessor but, under a written agreement with the credit provider or lessor,
largely controls the terms on which the credit contract or lease is
designed and altered.
https://asic.gov.au/
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A mortgage manager is a credit licensee who manages credit
contracts or leases on behalf of a credit provider or lessor (or their
agent) under the mortgage manager’s brand.
A franchisee can engage in credit activities either as a credit
representative of its franchisor or under its own licence.
A credit assistance provider may also be involved in meeting the
disclosure obligations as the agent of another person (e.g. a credit
representative may provide a quote on behalf of a credit licensee).
If “credit assistance” is provided, the responsible lending obligation must
be complied with even if the consumer does not enter into the credit
contract or consumer lease. This will also require records being retained
and documented even if the “credit assistance” is not related to assisting
a consumer to apply for credit.
Example
You are approached by a consumer who is making enquiries regarding a
debt consolidation loan and some additional borrowings for a holiday.
After you conduct a review, you realise that the consumer could possibly
be placed under ‘substantial hardship’ to meet their commitments, so
you decline
the application.
You called the consumer and discussed with them that you are unable to
assist at this time and recommend that it is best in the current
circumstances to remain in their existing contract, pay down their debts
a little more and you will review matters again in six months. At the
point you offer a “suggestion” in fact advice to the consumer you are
now offering “credit assistance” and as such this conversation will need
to be documented and retained for compliance and audit purposes.
What factors constitute a person entering into a credit
activity?
Here is a typical list of what constitutes a person engaging in a credit
activity:
Entering into a Credit Contract;
Entering into a Consumer Lease;
Providing Credit Service – you will provide a credit service if you either
provide credit assistance to a consumer or you act as an intermediary
(see Section 7 of the National Credit Act for further guidance);
Entering into a Mortgage; or
Agreeing to Guarantee a mortgage, credit contract or consumer lease.
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Compliance to responsible lending conduct obligations
ASIC expects credit licensees to establish their own compliance
processes depending on the businesses model, product type and credit
activities that the licensee undertakes or offers.
Remember, that without appropriate processes in place, it will be very
difficult for a licensee to prove that he is complying with his responsible
lending obligations (see Regulatory Guide RG209.38 – 209.45 for further
guidance).
The following image visualises the different steps that a regulated entity
must take to ensure compliance under the responsible lending conduct
obligations.
Making reasonable enquiries
The main objectives of the responsible lending conduct obligations are to
ensure that a licensee or credit representative does not suggest, assist
with or provide an “unsuitable” credit contract or consumer lease to a
consumer. Knowing a consumer’s current needs and payment capacity
can help a credit provider, licensee or credit representative determine
the suitability of the proposed contract (refer to Regulatory Guide-RG
209.12 for further detail).
The regulation states that before providing a service or assisting a
consumer, credit assistance providers, credit providers and lessors need to:
1. Make “reasonable enquiries” about the consumer’s requirements,
needs, and intended purposes in relation to the proposed credit
contract or consumer lease;
2. Make “reasonable enquiries” about the consumer’s current financial
status, specifically his capacity to meet future payment obligations
without significant difficulty
3. Take “reasonable steps” to verify the information obtained during the
first two steps.
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Having consumers fill out a standard Fact Find Questionnaire assists to:
Determine the consumer’s needs;
Determine the consumer’s priorities;
Determine the consumer’s requirements; and
Verify the consumer’s repayment capacity, as well as their income,
expenses and financial situation.
The obligation to make reasonable enquiries is scalable, which means
that the type and scope of information required from a consumer will
depend on the particular business model and type of services provided.
Simply put, credit licensees, credit representatives and providers will
need to decide what type of questions need to be asked and the extent
of required verification, in order to meet their responsible lending
conduct obligations.
How to apply scalability in conducting enquiries?
Factors are relevant to scalability include, but are not limited to:
the potential impact of a credit contract on the consumer– if the
consumer is more likely to face serious hardship in case of an
unsuitable credit contract, more in-depth enquiries are likely necessary,
e.g. even small loans can cause serious financial difficulties for low-
income consumers
the scope and complexity of the credit contract – if the credit
contract has complicated terms, more in-depth enquiries are likely
needed;
the consumer’s capacity to understand the credit contract – if
the consumer appears to have difficulties understanding the credit
contract (the consumer does not speak English or has difficulty
articulating), seems confused or conflicted about their objectives, or if
there is an obvious mismatch between the consumer’s objectives and
the proposed credit contract, more extensive enquiries about the
consumer’s requirements and objectives should be conducted;
on the other hand, if the consumer is an existing customer of a
credit provider and already has information on file, less extensive
enquiries and verification may be necessary.
Examples of reasonable enquiries
Reasonable enquiries about the consumer’s requirements and objectives
could include, but are not limited to:
the purpose,
timeframe, and
credit amount
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If the credit contract is required to purchase a specific item, the
enquiries can also include an examination regarding the term of the
loan
corresponding to the useful lifespan of the asset, the nature of the credit
requested, and the consumer’s declared objectives.
On the other hand, examples of reasonable enquiries about the
consumer’s financial situation could include, but are not limited to:
the current amount and source of the consumer’s income,
the consumer’s fixed and variable expenses,
the consumer’s age, number of dependants, nature and value of assets
and liabilities,
credit history and any reasonably foreseeable changes in the
consumer’s financial circumstances.
Reasonable steps to verify information or the consumer’s financial
situation could include for example, obtaining credit reports, bank
account statements showing income deposits, payslips, employment
letters, pay summaries, tax assessment notices, recent income tax
returns and business activity statements.
Again, remember that the extent and process of verification can vary
from one case to another and will ultimately depend on the specific
circumstances of each client.
Verifying consumer information
Similar to acquiring financial information from the customer, verifying
the said information is typically a scalable activity. What amounts to
reasonable verification, will depend on the information and resources
available as well as the facts and circumstances of each case.
After making enquiries and gathering information from the consumer,
credit providers, licensees and credit representatives need to test the
reliability and validity of the information provided. Some methods to
verify consumer information include:
Double-checking relevant documents such as credit reports, payslips,
bank statements, or tax returns
With the consumer’s permission, enquiring and cross-checking
information with the consumer’s employer and/or accountant
Further enquiries depending on the circumstances of the case
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Factors to consider in verifying information
There are several factors credit providers, licensee and credit
representatives should consider when verifying information supplied by
the consumer:
Simple verification of financial status/income details may be easily
accessible using certain documents (e.g. amount of deposited salary,
schedule of regular payments, etc.). However, ASIC warns not to rely
solely on this information, as this may be insufficient in providing a
clear, comprehensive picture of the consumer’s financial situation.
Implementation of processes to ensure the reliability of information
collected from third parties. Again, this information should not be solely
relied upon.
Benchmarks or automated systems to check the reliability of
information. Again, take note that these tools and benchmarks cannot
substitute the lender’s obligation to make reasonable enquiries.
Moreover, all automated systems and benchmarking tools should be
checked and updated regularly to ensure accuracy and relevance (see
RG 209.105 for more details).
Example of some required supporting documents, document type and
verification to be completed.
Document Type Information that should be verified
Drivers licence Identification Name, address, date of birth, photo match
Payslip Income Annual salary, frequency, employer details, overtime
Bank
statement
Savings/
contribution
Name, address, consistency of deposits/salaries
Producing preliminary or final assessments
The primary responsibility of credit providers, licensees and credit
assistance providers is to conduct an assessment examining whether or
not the proposed contract is “unsuitable” and likely to cause significant
financial difficulty for the borrower.
Remember that credit licensees need to make enquiries and verifications
before starting the assessment process.
If you are a credit assistance provider, you need to make a preliminary
assessment proving that a proposed credit contract or consumer lease
is not unsuitable within 90 days before providing any sort of credit
assistance to a consumer.
On the other hand, if you are a credit provider or a lessor, you need to
make a “final assessment” proving that a credit contract or consumer
lease is ‘not unsuitable’ for the consumer before entering into a credit
contract or consumer lease, increasing the credit limit on a credit
contract, or making an unconditional representation about the
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consumer’s eligibility. Credit providers need to make the final
assessment within 90 days before the contract is entered. If the credit
is intended for buying property with a secured mortgage, final
assessments need to be provided within 120 days before the start of
the credit contract.
The key concept is that credit licensees must not enter into a credit
contract or consumer lease with a consumer, suggest a credit contract
or assist a consumer in applying for credit if the credit contract or
consumer lease is unsuitable for the consumer.
What types of information are included in preliminary and final
assessments?
Requirements and objectives;
Product description and recommendation as well as the basis on which
the recommendation was made;
Funding position and disclosure of remuneration;
Credit contract or consumer lease agreement features and benefits;
Product comparisons; and
The borrowing capacity summary.
Which credit contracts or consumer leases are considered
“unsuitable”?
While ASIC did not set a specific definition of what “unsuitable” credit
contracts or consumer leases mean, it is generally understood to refer to
wrong or bad contracts that will cause substantial difficulties for the
consumer.
A loan contract/lease is considered unsuitable, if at the time the
assessment is made, it is likely that:
The consumer will either be unable to pay for financial obligations under
the contract, or will only be able to do so with serious difficulty; or
The proposed contract or lease does not meet the consumer’s
objectives or requirements.
Both the NCCP and RG 209 do not have a clear-cut definition of what
“substantial hardship” means. However, RG 209 lists several factors to
consider when determining the possibility of substantial hardship
resulting from an unsuitable credit contract.
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These factors include, but are not limited to:
The amount of surplus cash left to the consumer after deducting regular
living expenses, plus the additional repayments required by the
proposed credit contract
The consumer’s source of income
The reliability and consistency of a consumer’s income
A consumer’s existing debts and other obligations
The likelihood of a consumer selling major assets (car, house, etc.) in
order to repay loans
The NCCP also specifies two circumstances where it is assumed that a
credit contract will indeed cause significant hardship, unless further
enquiries prove otherwise:
If the consumer needs to sell his primary place of residence in order to
pay the loan (see NCCPA sections 118(3), 123(3), 124(3), 131(3),
133(3), 142(3), 146(3), 147(3), 154(3) and 156(3) for more details);
or
If the contract is a small amount credit contract and
The consumer already borrowed and defaulted payments for
another small-amount credit contract
The consumer has already availed of two or more small amount
credit contracts at least 90 days before the assessment of the
new proposed contract
It is also possible to help determine the possibility of “substantial
hardship” arising from an “unsuitable” loan through the use of
benchmarks, such as the Henderson Poverty Index (HPI) or Household
Expenditure Measure (HEM). The use of benchmarks is not a
replacement for making enquiries about a particular consumer’s current
income and expenses, nor a replacement for an assessment based on
that consumer’s verified income and expenses.
Presumptions of significant hardship can be debunked with enough
contrary evidence arising from reasonable enquiries. For example, a
consumer may be willing to make reasonable changes to their lifestyle
(such as cutting back on non-essential expenses) so as to allow them to
repay loans without significant hardship. In this case, a proposed credit
contract can be seen as “suitable”.
Example:
An example of a potentially unsuitable credit contract would be when a consumer has to sell
his principal place of residence in order to repay the loan. Losing the primary place of
residence is considered equal to significant hardship, unless the consumer proves otherwise
(i.e. he has other places of residence and will not be rendered homeless).
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This example shows the need to consider all circumstances of this
particular case to ensure that the proposed credit contract or lease will not
result in significant hardship. Credit providers need to consider
conversations they have had with a consumer about how a proposed credit
contract is likely to affect their living expenses and overall financial status.
Providing the consumer with relevant documents
How do I provide written assessments?
If a consumer requests a copy of the preliminary or final assessment,
credit licensees, providers and credit assistance providers must give the
consumer a written copy of the assessment within the prescribed
timeframes and free of charge (see Sections s120 and 143 of the
National Credit Act for further guidance).
Assessments can be handed to
the consumer in person, or if the consumer agrees, can be sent via
electronic means or in an electronic format.
Written assessments should:
help consumers understand that the credit contract has been assessed
as ‘not unsuitable’ for them; and
demonstrate the credit provider’s compliance with the responsible
lending obligations.
ASIC does not require lessors to disclose sensitive lending criteria used
to assess the suitability of the contract. Only general information and
definitions regarding ‘requirements and objectives’, ‘capacity to repay’
and ‘reasonable enquiries’ are needed in a written assessment.
The prescribed timeframe for providing written assessments depends on
when the client’s request is made.
If you are a:
Request filed WITHIN two (2)
years from the start of the
contract
Request filed AFTER two (2)
years from the start of the
contract
Credit provider
(lender) or lessor
Written assessments should be given
within 7 business days
Written assessments should be given
within 21 business days
Assignee of a
credit provider
Written assessments should be given
within 15 business days
Written assessments should be given
within 25 business days
Credit assistance
provider (lender)
Written assessments should be given
within 7 business days
Written assessments should be given
within 21 business days
Are there exemptions in providing written assessments?
In particular cases, yes. You are exempted from the obligation to
provide a written assessment if:
You are a credit provider and the transaction does not proceed; or
You are a credit assistance provider and you do not provide credit
assistance to a consumer. For example, if you advise a consumer to
enter into a contract and he eventually decides not to do it, he can still
request a copy of your preliminary assessment.
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What are the other documentary requirements and obligations?
In accordance with the provisions of NCCPA and RG 209, credit
providers, lessors, credit assistance providers and credit representatives
are required to provide certain documents to consumers at particular
stages of the credit process. You must give the consumers these
documents to ensure that they have access to information to help them:
Make decisions about dealing with you;
Understand their rights if they do deal with you; and
Understand the contracts that they are being offered.
The following table summarises the different types of disclosure documents
you may need to give, depending on what type of entity you are.
If you are a:
You need to provide…
Credit
guide
Quote
Credit or
lease
proposal
disclosure
document
Written
preliminary
assessment
or final
assessment
Key facts
sheet for
standard
home
loan
Key facts
sheet for
a credit
card
contract
Equity
projections
and reverse
mortgage info
statement
Credit provider
(lender), assignee
or lessor
YES N/A N/A YES, final
assessment
YES YES YES
Credit assistance
provider (lender)
YES YES YES YES,
preliminary
assessment
N/A N/A YES
Credit
representative
(lender)
YES N/A N/A N/A N/A N/A N/A
Debt collector (if
a licensee or
credit rep)
YES N/A N/A N/A N/A N/A N/A
Note: a credit quote only needs to be provided by a credit assistance provider where they are charging a
fee for their services
Which disclosure documents must I give to consumers?
Depending on what you do and how you do it, you may need to provide
some of the following documents to consumers. These documents will
be explained in more detail later in this module.
Credit guide
A credit guide provides preliminary information about the licensee and
the credit representative to a consumer. When the consumer should be
provided a credit guide will depend on the type of entity and the credit
activities they engage in, but will generally be provided before they
engage in credit activities with the consumer.
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Fact find or client’s needs review
This document captures a consumer’s personal information, goals,
objectives and financial information required prior to making any
recommendations. Whilst it is not mandatory, it is best practice to
gather client information in a systematic way, in order to meet
responsible lending obligations.
Quote
A quote tells the consumer the estimated cost for the advice and
services. Many licensees and credit representatives do not charge a ‘fee
for service’. The consumer must have accepted the quote by signing and
dating the quote and must be provided a copy of the accepted quote.
Credit or lease proposal disclosure document
A proposal document sets out the costs to the consumer of using your
services, including any commissions you may receive. You are required
to provide a proposal document at the same time you provide credit
assistance to a consumer.
Preliminary assessment or final assessment
If requested by the consumer:
Credit assistance providers must give the consumer a copy of the
preliminary assessment free of charge; and
Credit providers and lessors must give the consumer a copy of the
final assessment free of charge.
Key facts sheet for standard home loans:
If a credit provider has a website on which consumers can enquire
about, or apply for, a standard home loan, the consumer must be able
to generate a key facts sheet using the website; or
If a consumer otherwise requests a “Key Facts” sheet for a standard
home loan, the credit provider must give the consumer a key facts
sheet.
Note: See Section s1AC, 133AD of the National Credit Act for further
guidance.
Key facts sheet for a credit card contract
Credit providers. The application form for a credit card contract
must include a key facts sheet (see Sections s114 (1) and 137 of the
National Credit Act for further guidance).
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For reverse mortgages—equity projections and reverse
mortgage information statement
Before giving a preliminary assessment or a ‘final’ assessment in
connection with a reverse mortgage, a credit provider or credit
assistance provider must:
show to the consumer in person—or give the consumer by mail, email
or another form of written or electronic communication agreed to by
the consumer—projections that relate to the value of the dwelling or
land that may become reverse mortgaged property, and the
consumer’s indebtedness, over time, if the consumer were to enter into
a reverse mortgage;
give the consumer a printed copy of the projections; and
give the consumer a reverse mortgage information statement.
The projections must be made using the reverse mortgage calculator on
ASIC’s MoneySmart website (www.moneysmart.gov.au), and in
accordance with ASIC’s instructions for making projections that are
included in the calculator. If the credit provider or credit assistance
provider has a website that provides information about reverse
mortgages, they must make a reverse mortgage information statement
available through the website: s133DC. If a consumer otherwise asks for
a reverse mortgage information statement, the credit provider or credit
assistance provider must give them this
document.
Exemptions from providing disclosure documents
The following table provides an overview of instances where regulated
entities under the National Consumer Credit Act do not need to provide
credit disclosure documents.
If you are a:
You do not need
to provide a: If
Credit provider or lessor Credit guide A guide has been provided in the last 12 months and
the licensee’s External Disputes Resolution (EDR)
scheme details have not changed
All credit assistance
providers
Credit guide A guide has been provided in the last 12 months and
the EDR scheme details have not changed
Quote It is indicated in your credit guide or proposal
document that you do not intend to charge fees or no
fees have been charged
Product designer (credit
assistance provider)
Credit guide The credit provider or lessor has disclosed your
relationship with them in their credit guide
Credit assistance
provider with shared
responsibility
(ADI franchisees or
branded arrangements)
Written assessment If you already gave the credit provider details of the
consumer and information that will allow him to make an
assessment
Proposal document The consumer does not have to pay a fee or charge.
For credit card contracts, if the information on
commissions has already been provided within 15 days
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Credit representative Credit guide A guide has been provided in the last 12 months and
the EDR scheme details have not changed
Franchisee (credit
representative)
Credit guide
You are authorised by a credit licensee, or their
representative
You are a franchisee, or an employee or director of a
franchisee, under a franchisee agreement
The credit guide of the licensee explains that the
licensee takes responsibility for credit activities
Debt collectors (licensee
or credit representative
Credit guide
A guide has been provided in the last 12 months and
the EDR scheme details have not changed and you
have already given the consumer a credit guide as a
credit assistance provider or a credit representative.
The credit guide relates to the same credit contract
that you are authorised by the credit provider or lessor
to collect payments for.
Seniors Equity Release
There are a small range of seniors equity release products offered, the
most common being a Reverse Mortgage. A reverse mortgage is a loan
facility whereby a homeowner can borrow money against the value of
his or her home. Loans can be a lump sum, a regular income stream, a
credit line, or a combination. While interest is charged like any other
loan, no repayment is required (both principal amount and interest) until
the borrower dies, sells the house, repays the debt in full or moves into
an aged care facility.
While there is no income rate required to qualify for a reverse mortgage,
this type of loan comes with several risks that need to be considered,
such as:
Higher interest rates
The loan amount increases quickly due to compound interest
Reverse mortgage can negatively affect pension eligibility
The income you receive is often much lower than the capital
appreciation of your house
The Australian government introduced statutory ‘negative equity protection’
(i.e. the total debt must not exceed the market value of a borrower’s
house) on 18 September 2012. ASIC monitor these products closely and
place additional responsible lending obligations on credit providers who
offer reverse mortgages, so as to ensure consumer protection.
Additional responsible lending requirements for Reverse Mortgages were
imposed by ASIC in November 2014. The additional requirements must
be taken into consideration when making reasonable enquiries and
verifications (e.g. you are required to make the following enquiries
about the consumer’s future needs)
The possible need for aged care accommodation; and
Whether the consumer prefers to leave equity in the dwelling or land to
the consumer’s estate
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In the circumstances of a particular consumer, it may be reasonable to
also make inquiries about other possible future needs.
This additional requirement does not limit the types of inquiries that it
may be reasonable to make about a particular consumer’s broader
requirements and objectives in relation to the credit contract.
This additional requirement was imposed to ‘require credit licensees to
discuss with reverse mortgage applicants, not just the short term effects
of the reverse mortgage, but also how the loan may affect the
borrower’s options as they age, or impact the amount of equity they can
leave to their estates’: see the Explanatory Statement to the National
Consumer Credit Protection Amendment Regulation 2013
Before giving a “preliminary assessment” or a “final” assessment in
connection with a Reverse Mortgage. You must show the consumer in
person – or give the consumer by mail, email or another form of written
or electronic communication agreed to by the consumer, the following
details and
information:
Give the consumer a printed copy of the “Equity” projections that relate
to the value of the dwelling or land that may become a reverse
mortgaged property. Using the reverse mortgage calculator on ASIC’s
MoneySmart website (www.moneysmart.gov.au) and in accordance
with ASIC’s instructions for making projections that are included in the
calculator;
Give the consumer a “Reverse Mortgage Information statement” of the
consumer’s indebtedness, over time, if the consumer were to enter into
a reverse mortgage (refer statement s133DB of the National Credit
Act);
Note: If a consumer otherwise asks for a reverse mortgage information
statement, the credit provider or credit assistance provider must give
them this document (refer statement s133DD of the National Credit Act).
Small Amount Credit Contracts
How does the Credit Code impact on Small Amount Credit
Contracts?
Definitions
A “Small Amount Credit Contract” (SACC) is defined as “loans that are
for $2,000 or less, and are for a term of between 16 days and one year”.
A “Medium Amount Credit Contract” (MACC) are “loans of $2,001 to
$5,000 for terms of at least 16 days but not more than two years”.
file:///C:/Users/meremie.kingham/AppData/Local/Temp/54/www.moneysmart.gov.au
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There are additional requirements that must be taken into consideration
when making reasonable enquiries and verifications for small
amount credit contracts. This includes:
A minimum requirement, which can be “scaled down”, to obtain
account statements to verify the consumer’s financial situation.
Additional responsible lending requirements for small amount credit
contracts were imposed because of the particular risks to consumers
that can result from using these kinds of credit contracts.
In particular, there are risks that the repeated or continued use of credit
provided through this form of credit contract will result in consumers
entering into multiple contracts where the overall level of indebtedness
increases over time so that:
(a) an increasing proportion of the consumer’s income will need to be
used to meet the repayments; and
(b) the capacity of the consumer to use the credit to improve their
standard of living is diminished.
Inquiries and verifications that must be made for small
amount credit contracts
There are additional statutory provisions that apply such as; limits on
circumstances where small amount credit contracts can be entered into,
charges that can be made and specify particular steps that must be
taken to verify the consumer’s financial situation.
To be satisfied that the provisions would not be contravened if the
consumer enters into a small amount credit contract, you will need to:
(a) make inquiries about whether the consumer is currently in default
under an existing small amount credit contract, or has been a debtor
under two or more small amount credit contracts in the 90-day
period before the assessment (because of the presumption of
substantial hardship in these circumstances:
(b) make inquiries about the source and amount of the consumer’s
gross income (because of the prohibition on entering into small
amount credit contracts where a consumer receives at least half of
their gross income from Centrelink and repayments would exceed a
specified proportion of their gross income.
(c) verify the consumer’s financial situation by obtaining and considering
recent bank account statements; and
(d) make inquiries about whether the credit obtained will be used to
repay
another small amount credit contract
(because of the
restriction on the fees that can be charged for a small amount credit
contract where it is used to refinance any amount provided under
another small amount credit contract
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Source of income
A credit licensee must not enter into, or offer to enter into, a small
amount credit contract with a consumer who will be the debtor under
the contract if:
(a) the consumer receives at least 50% of their gross income as
payments through Centrelink; and
(b) the repayments in a payment cycle would exceed 20% of the
consumer’s gross income.
This additional requirement was imposed to mitigate ‘the risk of
borrowers who are dependent on Government benefits for their income
entering into a debt cycle, where the amount of repayments relative to
their income results in an ongoing need for credit’
In light of this requirement, ASIC would expect credit providers and
credit assistance providers to make reasonable inquiries and
verifications about:
(a) the source of the consumer’s income; and
(b) if the consumer’s income includes Centrelink payments, the
proportion of the consumer’s gross income constituted by those
payments.
If the repayments are less than 20% of the consumer’s gross income,
you still need to make reasonable inquiries and verifications to enable
you to determine whether the consumer would have the capacity to
meet their payment obligations, or could only do so with substantial
hardship, in accordance with your usual obligations.
Account statements
If you propose to enter into a small amount credit contract with a
consumer, or provide credit assistance to a consumer—by suggesting that
they apply for a small amount credit contract or by assisting them to
apply for a small amount credit contract—and the consumer holds (alone
or jointly with another person) an account into which the consumer’s
income is paid, your steps to verify the financial situation of the consumer
must include obtaining and considering account statements that cover at
least the immediately preceding period of 90 days. You need to obtain
statements for all of the consumer’s accounts. You should check with the
consumer whether they hold more than one account.
You are required not only to obtain the account statements but to
consider the information contained in the statements and make further
enquiry where there are any concerns.
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Consumer Leases
How does the Credit Code impact on Consumer Leases?
Statements of Account
Lessors are required to issue:
A statement of account periodically, unless the lease is the subject of
enforcement proceedings during the statement period;
An end of lease statement at least 90 days prior to the end of a fixed
term lease; and
At the request of the lessee, provide a statement within 14 days, which
includes the following details:
Any amounts credited to the lessee;
Any amounts owing; and
When the amounts are due, and payable.
Changes to Consumers Leases by Agreement
Should any changes be made to the terms of an existing lease, the
lessor must within a 30 day period of agreeing to those changes notify
the lessee in writing the details of the changes setting out the
particulars of the change and the revised terms
Termination of a Consumer Lease
The following requirements apply where a ‘termination’ of a lease occurs:
Termination by consumer before receipt of the goods; or
Termination by consumer after receipt of goods.
Statement of amount payable
A “statement of amount payable must be given by the lessor within 7
days of receiving a written request from a lessee to terminate the lease.
The statement of amount payable must provide the following statements
of effect notices:
That “the amount payable in order to terminate the lease may change
according to the date on which it is paid”;
That the lessee has no right to own the goods if the lease is terminated;
and
That the lessee must return the goods to the lessor by a specific date.
Disputed accounts
There may be occasions whereby a lessee disputes their liability under a
consumer lease. Where this occurs the lessor will need to provide in
writing, a notice detailing how the liability has arisen.
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In the instance where a statement of account has been issued to the
lessee, the lessee must give notice of the dispute they have with the
lessor within 30 days from receipt of the statement of account on which
the amount or part of the amount in dispute is first shown.
Enforcement proceedings
To enforce proceedings it is a requirement for:
Lessors to provide a ‘one off’ notice to be given the first time a direct
debit default occurs; and
Lessors must also give a notice within 14 days when a default occurs
unless the default has been rectified within that time.
Default notices
Enforcement proceeding cannot commence unless a default notice is
issued. Upon issue of a default notice:
The lessor must give the lessee 30 days within which to remedy the
default;
The notice must also contain information regarding their rights pursuant
to hardship, postponement and making an application to the court.
Here are a list of circumstances where a default notice is not required to
be issued before enforcement proceedings are commenced or wait the
prescribed 30 days period:
The lessor was induced by fraud into entering into the lease;
The lessor has made reasonable attempts to locate the lessee but
without success;
Court authorises enforcement proceedings;
The lessor believes the lessee will dispose of the goods contrary to the
terms of the lease; or
The lessee becomes insolvent.
Postponement of enforcement action
The lessee can request a postponement of enforcement action, whereby
the lessor will need to reply within 21 days of receiving the request in
writing confirming or not the postponement and then wait a further 14
days before commencing enforcement action. Circumstances may occur
where a lessor does not agree to a postponement; in that event they
must provide the lessee details of their external disputes resolution
scheme and outline what rights they have in this regard.
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Enforcement action
Enforcement proceedings are defined as:
Commencing court proceedings;
Taking possession of property; or
Taking any other action to enforce a mortgage.
It is also important that prior to any enforcement action the lessor will
need to ensure that the lessee has been informed of their rights under
these new provisions. These rights available to the lessee must to be
outlined in any default notice issued where the lessor intends to
repossess the goods and terminate the lease.
Unconditional representation rules
Credit providers and lessors have an obligation to assess unsuitability
before making an unconditional representation about a consumer’s
eligibility to enter into a credit contract or consumer lease, or to increase a
credit limit on a credit contract.
This means that the responsible lending obligations do not just apply to
new credit contracts and consumer leases—the obligations also apply
when you are considering whether to increase a credit limit under an
existing credit contract (if you are a credit provider) or when you are
providing credit assistance in relation to an existing credit contract or
consumer lease by suggesting that the consumer remains in the
contract, suggest or assisting that the consumer applies for an increased
credit limit. If credit assistance is provided, the responsible lending
obligations must be complied with even if the consumer does not
subsequently enter into the credit contract or consumer lease.
Financial hardships
Financial hardship refers to the inability to settle repayments on existing
loans when they are due. There are often two main reasons for financial
hardship:
The consumer could afford to pay the loan when it was obtained but a
change in circumstances (extended illness, unemployment, etc.) has
made it difficult for him to do so at present; or
The loan offered was unsuitable for the consumer from the beginning,
and should not have been entered into.
If a consumer falls into the second category, he or she should seek legal
advice immediately.
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If a consumer is in financial hardship, Section 72 of the National Credit
Code (which is Schedule 1 of the National Credit Act) allows him or her to
request a change to the terms of their credit contract on the grounds of
financial hardship. This is called a ‘hardship variation’.
Take note that while the responsible lending provisions will not apply to
hardship variations unless additional credit is provided (which would be
highly unlikely in the vast majority of cases) or existing obligations are
refinanced (creating a new contract instead of varying the existing
contract), credit providers should still examine a consumer’s capacity to
meet revised payment obligations.
Hardship provisions – Consumer Credit Contracts and
Consumer Leases
On 1 March 2013, reforms to the National Credit Act amended the
obligations in s72 of the National Credit Code. These changes to the
legislation have been made in relation to hardship provision and the
following details are a summary of the obligations credit providers have
when a hardship application is made:
The limit of $500,000 was removed for those who wish to request
hardship assistance. There is now no ceiling on that amount. This
provision applies to both the credit contracts and consumer leases;
Dealing with consumers who have hardship in making repayments also
applies to small amount lenders;
A further change now allows for hardship assistance to be made either
orally or in writing. This means the debtor is giving notice to the lender
of their inability to meet their obligations under the contract or lease
and request to change the credit contract or consumer lease conditions
due to hardship; and
There is a provision that within 21 days of receiving a hardship notice
the lender may request specific information, which the debtor must
provide, and this also can be either orally or in writing. This information
is used to assist the lender to:
Determine whether the consumer is able to meet their current
contractual obligations;
Determine whether the contract or lease should be changed
under hardship provisions;
Determine where a change to the contract or lease is made by
the lender; and
Determine whether this will assist the debtor to meet their
obligations under the varied agreement.
Note: There is no requirement for a credit provider or lessor to vary the
credit contract or consumer lease in the event that they do not believe
there are reasonable grounds of hardship. Reasonable grounds may
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include sickness or unemployment. But, the credit provider must also
take into account that are they able to make the amended repayment
structure as the purpose of a hardship application is to receive relief and
not experience ongoing substantial hardship during that period.
If the credit provider chooses not to vary the contract or lease they
must provide to the borrower requesting hardship in writing the basis for
rejecting this request and the reasons why they have not decided not to
approve the hardship request variation. It is also a requirement of the
lender in this communication to provide information as to the name and
contact details of the approved external dispute resolution scheme.
They will need to further explain in the letter the consumer’s rights
under this scheme. Where a hardship application is in the process of
being heard by the external disputes resolution scheme no enforcement
action can be taken.
The credit provider has specific obligations and must provide this notice:
within 21 days where no additional information was required; or
28 days where information was required but the borrower has not
provided any; and
21 days after receiving the specified information for determining
whether a change is warranted or not.
Should the credit provider agree to vary a contract or lease in respect of
hardship they must provide notice in writing within 30 days to the
consumer the particulars of the change in terms of the contract or lease.
In a practical application applying these changes may include:
Extending the period of the contract and reducing each of the regular
payments. This is useful for anticipated long-term situations. In this
case the arrears resulting from the lower repayments would be added
to the loan;
Postponing a repayment for a specified period. (This is useful when the
financial difficulty is anticipated to be short-term);
A combination of the above; or
Where no repayments are made for an extended period, the term of
the loan is extended to accommodate the arrears that have
accumulated.
How does a borrower stand in regard to their Credit Rating?
By obtaining a hardship variation to the loan means the lender has
made a variation to the terms of the loan and as such the borrower is
not in default. The credit reporting agency they use will not be notified
of the arrears prior to the hardship variation being accepted.
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Effect of hardship notice on enforcement
The NCCP (section 89) requires a credit provider to issue a “default
notice” prior to recovery action on a debt. When a hardship provision is
in place specific conditions apply, and there is a requirement when a
default notice can be issued either before or after a hardship notice is
given.
For example:
In the 4 months before the current hardship notice is given to the
consumer and where they have not been given another hardship
notice; or
In that 4 month period the consumer has been given one or more
hardship notices. But, you have reasonable grounds to believe the
current hardship notice differs materially from the previous hardship
notices.
Credit providers cannot commence enforcement proceedings unless they
have given in writing a response to the current hardship notice stating
that they have not agreed to vary the contract or lease. Secondly they
must inform the borrower that the period of 14 days starting from the
date the response was given, has expired.
There is a requirement also for credit providers to allow 30 days for a
borrower to remedy a default.
In effect, there is a prohibition on beginning enforcement action while a
hardship application is being heard and for 14 days after responding to a
postponement of enforcement application.
The Sedgwick Review
On the 19th of April 2017, Stephen Sedgwick AO published the Final Report
of his Independent Review of product sales commissions and product based
payments in retail banking in Australia (Review), funded by the Australian
Bankers’ Association (ABA). It made 21 recommendations to the banks
around remuneration – three of which involved the third party channel.
Combined industry forum
In response to the ASIC Report and the third party recommendations of
the Sedgwick Review, and following consultations with Government, the
mortgage broking industry established the CIF to drive better customer
outcomes through improved governance and remuneration practices in
finance broking. This forum was tasked to achieve these outcomes
through the development of a package of industry led measures to
directly address the ASIC Report proposals, taking into account the third
party recommendations of the Sedgwick Review.
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The forum consists of a mix of industry bodies, associations, aggregators
and brokers working towards addressing and finding solutions for the key
proposals made by ASIC relating to the finance broking industry.
The Sedgwick Review also made similar recommendations to that
contained in the ASIC Report, however in Sedgwick’s case they were
framed at tackling the “significant risks of mis-selling” attached to current
arrangements to remunerate Mortgage Brokers.
These proposals are as follows:
1. Changing the standard commission model to reduce the risk of poor
customer outcomes [Sedgwick recommendation 18]
2. Moving away from bonus commissions and bonus payments which
increase the risk of poor customer outcomes [Sedgwick
recommendations 16. a) and 16. c)]
3. Moving away from soft dollar benefits which increase the risk of poor
customer outcomes and can undermine competition Specific areas
considered:
Tiered servicing (Broker Clubs)
Conferences/Professional development events
Entertainment and Hospitality [Sedgwick recommendation 16. b)]
4. Clearer disclosure of ownership structures within the home loan
market to improve competition.
5. Establishing a new public reporting regime of customer outcomes
and competition in the home loan market [Sedgwick
recommendation 19]
6. The industry needs to improve the governance and oversight of
brokers by lenders and aggregators [Sedgwick recommendation 17]
Conclusion
A range of changes have been introduced into legislation to refine the
delivery of credit to consumers. In particular better defined regulations
have been introduced to standardise the delivery of credit to
consumers.
For more information we recommend you review the legislative changes
at http://www.asic.gov.au
http://www.asic.gov.au/credit
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Consumer protection and ASIC penalties
The NCCP allows for borrowers to be protected in a range of ways, which
can take the form of:
Criminal penalties for licensee misconduct which can include possible
imprisonment for those who lend contrary to the responsible lending
requirements
Civil penalties for licensee misconduct which enable ASIC to seek heavy
fines into the Hundreds of Thousands for an individual and in excess of
$1 million for a corporation.
Infringement notices (fines) so that ASIC can act quickly to penalise
certain breaches of the law
Consumer remedies, such as compensation, which allow borrowers to
seek redress for their loss and damage from a licensee
ASIC can seek an adverse publicity order against a person who has
contravened or committed an offence against the NCCP. Under a
publicity order, a court may require a person to disclose certain
information in a specified way and to publish the information at their
own expense
Loss of fees, charges, interest, commissions, interest payments and
other monetary benefits or profits resulting from contracts while acting
unlicensed or engaging in unlawful credit activity.
(NOTE: Penalty amounts vary from time to time with amendments to
the Legislation)
Dispute resolution
There is a three-tiered dispute resolution system for consumer credit
issues, making it easier and less costly for borrowers to resolve
disputes. The system consists of access to:
The licensee’s internal dispute resolution process (IDR)
An ASIC-approved external dispute resolution (EDR) scheme
The Federal Court, Federal Magistrates Court and the courts of the
States and Territories.
Internal Dispute Resolution (IDR)
All those operating under a financial services or credit licence must have
IDR procedures that:
Cover the majority of complaints clients make
Adopt the definition of ‘complaint’ in complaints handling standard as
ISO 10002-2006
Satisfy the guiding principles of section 4 of as ISO 10002-2006 and the
following sections of as ISO 10002-2006:
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Section 5.1—commitment
Section 6.4—resources
Section 8.1—collection of information (which requires financial
service providers to record complaints data) and
Section 8.2—analysis and evaluation of complaints
Provide a final response within 45 days
Appropriately document IDR procedures.
In particular, an IDR scheme must follow the regulations of Regulatory
Guide 165 ‘Licensing: Internal and external dispute resolution’. This
requires that a final response must be given writing within 45 days of
receipt of a complaint, advising the complainant of:
Either the outcome of the complaint, or where there is a delay, the
reasons for the delay
The right to complain through EDR
The name and contact details of the relevant EDR
scheme.
A body corporate can sub-authorise credit representatives who are
employees or directors of the body corporate, without them having to
hold membership of an EDR scheme in their own right.
Importantly, where a credit representative acts outside the scope of
their authority, the lender will still be responsible for its representative’s
actions. Furthermore, where there is more than one credit licensee
involved in the conduct, the credit licensee is jointly and severally liable
with the other credit licensees for the representative.
External Dispute Resolution (EDR) Framework
EDR Schemes provide borrowers with an independent, informal and no
cost alternative to going to court. EDR Scheme members (licensees and
credit representatives) are bound by a decision of an EDR Scheme.
Borrowers retain their right to access the courts following a decision or
outcome by an EDR Scheme.
All credit providers and third party credit providers (ACL’s/ACR’s) must:
Have appropriate links between their IDR procedures and EDR scheme
(including a system for informing complainants about the availability of
EDR and how to access it)
Maintain the EDR scheme reports regarding:
Systemic issues and serious misconduct
General complaints information, and
Information about complaints received and closed, with an indication of
the outcome against each scheme member in their annual report
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Covers the vast majority of types of complaints in the relevant industry
(or industries)
Operates a minimum compensation cap that is consistent with the
nature, extent and value of borrower transactions in the relevant
industry or industries.
Australian Financial Complaints Authority (AFCA)
On 9 May 2017, based on the findings and recommendations of the
Review of external dispute resolution and complaints arrangements in
the financial system (the Ramsay Review), the government endorsed
the establishment of a single scheme to deal with all financial disputes
(including superannuation disputes), combining and streamlining the
existing three external dispute resolution (EDR) schemes into the new
Australian Financial Complaints Authority (AFCA).
The purpose of AFCA is to ‘one stop shop’ dispute resolution body to
ensure that consumers and small businesses have access to free, fast
and binding dispute resolution.
On 14 September 2017, the bill Treasury Laws Amendment (Putting
Consumers First—Establishment of the Australian Financial Complaints
Authority) Bill 2017 was introduced to set out standards that AFCA must
meet:
to provide additional powers to enable AFCA to effectively resolve
superannuation disputes
to give Australian Securities and Investments Commission (ASIC)
certain regulatory powers, including the power to issue general
directions and approve material changes to the AFCA scheme.
Activity 4 – External Dispute Resolution Service
(EDRS)
What message does AFCA recommend to be made available for
customers on your website and disclosure documents?
Check the model answers section
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Court remedies
Under AFCA, consumers also have access to streamlined court
procedures for ‘small claims’ actions they have started in a magistrate’s
court, local court or the Federal Magistrates Court. Features include;
Being available for claims of awards up to $20,000 or such higher
amount as is prescribed in regulations
A presumption that consumers will not have legal representation. This
provides that the state tribunal practices of self-representation will be
retained and legal costs for borrowers minimised, and
Informal legal procedures where the court will not be bound by formal
rules of evidence and may act without regard to legal forms and
technicalities, easing the difficulty for consumers in using the legal
system.
Remedies to protect consumers are an important element of the NCCP as
they enable them to take direct action against a licensee or credit
representative who breaches the law and causes them loss or damage.
These actions can provide sufficient deterrent against breaches
of the law.
Such remedies are considered an important way of influencing and curbing
market behaviour.
Any compensation to a consumer or an order in relation to loss or damage
can be mitigated (including limiting the amount of compensation) if the
consumer has made false or misleading representations in order to obtain
the credit. This is to take into account what is practically just in the
circumstances.
Consumers will normally not incur costs for applications for hardship
variation or seeking to postpone an enforcement proceeding. This will
prevent cost being a disincentive to consumers seeking court remedies.
Advertising
Advertising the availability of credit is prohibited unless the advertisement
complies with certain requirements. Other than your ACL number and rules
around interest rate advertising, ASIC provide good practice guidelines for
all areas of advertising. It is important to note that an advertisement for a
credit product does not need to include an interest rate, but must do so if
the advertisement states the amount of any repayment.
The NCCP also contains measures aimed at restricting door-to-door
canvassing. These measures prohibit a lender from visiting a residence for
the purpose of inducing a person to apply for, or obtain credit, except by
prior arrangement with the person who normally resides there.
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It is important to note that this restriction does not apply where the person
is visiting a residence to offer goods or services for sale where credit is
available to finance the sale. Refer to ASIC RG234 for further
information.
Comparison rates
A comparison rate reflects the total cost of credit arising from interest
charges and other fees and charges. The objective is to help borrowers
identify the true cost of credit, which allows for a much easier
comparison between loan products.
Under the NCCP, mandatory comparison rate schedules which were
provided to clients were abolished. However, they are mandatory in
promotional materials that advertise an interest rate and must represent
the typical amount and term offered.
The comparison rate formula must include:
The amount of the loan
The term of the loan
The repayment frequency
The interest rate and
The fees and charges connected with the loan, except for:
Government charges, such as stamp duty (depending on State) or
mortgage registration fees
Fees and charges which may, or may not, be charged, because they
depend on some event which may, or may not, occur e.g. fees for early
repayment or redraw fees
Fees and charges which are not ascertainable at the time the
comparison rate is provided.
For example if a lender advertises an interest rate of 5.49% its comparison
rate might be 5.75%. Where the fee cannot be determined, at the time the
comparison rate is published, a reasonable estimate should be used. The
comparison rate only allows comparison based on cost, and will not include
other factors that may make a loan more attractive, such as access to fee
free accounts or flexible repayments arrangements.
Advertised comparison rates must include:
The name of the consumer credit product, the amount and term of
credit to which each comparison rate applies
Whether the loan is secured or unsecured
A prescribed warning about the accuracy of the comparison rate
Identifying the comparison rate as a comparison rate
Not disclosing a comparison rate less prominently than any advertised
annual percentage rate or repayment amount.
https://asic.gov.au/regulatory-resources/find-a-document/regulatory-guides/rg-234-advertising-financial-products-and-services-including-credit-good-practice-guidance/
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Loan offset accounts
If a loan is linked to a loan offset account, the obligation to disclose
information is more difficult because the lender will not know whether,
or to what extent, the balance in the offset account will be maintained
throughout the term of the loan.
Therefore, a lender is allowed to assume that the contract is not linked
to the offset arrangement for the purpose of complying with disclosure
obligations, even when it is. This has the effect that total interest may
be less than quoted.
Credit provided as a consumer lease
The regulation largely replicates the requirements of lenders, licensees
and credit representatives in regard consumer leases.
However, there are separate disclosure requirements because:
Lessees can mistakenly believe that they have an ability to buy the
goods when they do not
The amount paid under the lease may be considerable (that is,
equivalent to that paid under a credit contract) but the lessee has no
right to the goods when the lease ends
A level playing field is necessary for lenders who provide consumer
credit and those that finance goods through consumer leases.
A consumer lease must disclose the following matters where
ascertainable:
A description of the goods
The amount of any charges payable (including government charges)
The amount of each rental payment
The number of payments required
Details as to when the payments are due.
Information as to when the lease may be terminated and a statement
of liabilities (if any) on termination.
These measures replicate similar conditions in the NCCP and include:
Restrictions on requiring that insurance be taken out or arranged by the
lender or supplier
Restrictions on financing insurance premiums under a credit contract
Limits on commissions paid by an insurer
Automatic termination of an insurance contract where the credit
contract is terminated.
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Credit guides, contracts and other disclosure
documents in more detail
Under the responsible lending obligations the following types of
disclosure documents need to be provided, depending on the type of
credit activity:
Credit guide (before you provide credit assistance or enter into a
consumer loan or lease)
A written quote with information about the maximum amount payable
in relation to credit assistance and other services
A preliminary assessment of whether a loan or consumer lease is
suitable for the consumer
A credit proposal disclosure document or lease proposal disclosure
document.
Credit representatives of Licensees will have their own unique identifying
number (their credit representative number). If a person is required to
give a credit guide as a credit representative of a Licensee, they will
need to include this number in the credit guide.
Credit guides (credit service providers)
The purpose of the credit guide is to provide the consumer with key
information early so they are informed and aware of necessary matters
before deciding to use the services of the credit service provider.
It includes contact information including the ACL number, and disclosure of
key conduct obligations of the credit service provider and key rights of the
borrower (such as the requirement not to suggest or assist with unsuitable
loans, the borrower’s right to request a copy of the preliminary assessment
and access to information about procedures for resolving disputes).
The guide must also include information about the possible nature and
size of fees and charges that the borrower may incur if they use the
credit service provider. This should include the basis on which the
borrower would pay, such as an hourly rate or the percentage of the
amount of credit secured.
In addition, the guide also includes information about the six lenders
with whom the credit service provider conducts the most business, and
must also set out an overview of the commission arrangements from the
lenders with whom they deal for providing credit assistance.
This disclosure may set out that the commission is a certain rate or a
range of rates and trailing commission of a certain rate or range of rates
upon the successful securing of the loan.
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For example:
The reasonable estimate of the amounts may, for example, be set out
in percentage or dollars (for example, per $1,000 of credit secured)
The information about the method for working out these amounts may,
for example, state that it is a flat rate or relates to a volume of sales.
The following table documents when credit guides are to be provided to
consumers.
Licensee credit
assister
As soon as practicable after it becomes apparent to the licensee
that it is likely to provide credit assistance to a consumer in
relation to a credit contract (or lease)
Licensee credit
provider/lessor
As soon as practicable after it becomes apparent to the licensee
that it is likely to enter a credit contract (or lease) with a
consumer who will be the debtor under the contract (or lessee
under the lease)
Assignee As soon as practicable after it has been assigned any rights or
obligations of a credit provider under a credit contract
Credit rep (CR) When a credit representative of a licensee gives a consumer the
licensee’s credit guide when acting on behalf of the licensee, the
credit representative must at the same time give the consumer
the credit representative’s credit guide
Debt collector As soon as practicable after it becomes authorised by a credit
provider to collect, on the credit provider’s behalf, repayments
made by a debtor under a credit contract
Credit quotes (credit service provider)
If the finance broker is going to charge the client a fee for the credit
assistance that is to be provided, the consumer must be given a quote.
The quote advises the consumer of the maximum cost to them and
includes all costs that the consumer will be likely to incur either out of
their own pocket or disbursed from the credit.
The quote must advise the consumer of whether or not the costs will be
incurred irrespective of whether the credit is successfully secured.
The quote must be signed (or otherwise accepted) and dated by the
consumer and then a copy of the accepted quote must be provided to
the consumer before
the credit assistance
is provided.
Specifically, the quote must set out in writing (or given in an appropriate
manner for the circumstances such as by email):
Information about the services that the quote covers, such as the scope
of the credit assistance to be provided and any other services that will
incur a cost to be paid
The maximum amount payable in relation to the credit assistance
detailing:
In dollars, the maximum fee payable by the consumer for using
the credit assistance
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In dollars, the maximum of any other charges for providing the
credit assistance that will be passed on to the consumer (for
example postage or photocopying)
Whether the amount is payable if the loan is not approved or the credit
limit is not increased.
The credit service provider must neither request nor demand payment of
the quoted amount prior to providing the credit assistance nor demand
payment of an amount that exceeds the maximum amount set out in
the quote.
Credit Proposal Disclosure (Credit service provider)
Credit proposal disclosures must be provided at the same time as
providing credit assistance and should contain the following:
Information about commissions, including a reasonable estimate of the
total amount of any commissions.
Fees and charges
A reasonable estimate of fees or charges the consumer is liable to pay.
Where fees or charges are disbursed from the credit being applied for,
an estimate of the net amount of credit that will be available to the
consumer after those payments are made, must be included.
The following is an example of fees and commissions that would be
disclosed to a client:
Scenario:
Bob Blanks, a real estate agent, has referred Joe Bloggs who wishes to apply for a loan of $400,000 to
buy a home. The Credit Representative, John Jones, has an agreement with Bob to pay him $280
(including GST) referral fee on a successful loan application.
John has also quoted a fee to Joe to recommend and apply for a loan on his behalf for $600.00
(including GST) (in most cases non-refundable).
Other fees include the valuation fee that is estimated at $300.00, $700.00 for legal fees and a loan
application fee of $500.00.
The Credit Representative’s Licensee receives from the lender an up-front commission of 0.50% +
GST of the loan amount and a monthly trail commission of 0.2% + GST on the outstanding loan
balance. An agreement will be in place between the Licence holder (Principal) and the Credit
Representative (Contractor/Employee) to proportionately share the commissions.
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Fees and commissions
Credit representative fees
payable to us for the
provision of broking service
Our service fee is $600.00 (including GST)
Fees payable to third
parties
Fees or charges paid by us to third parties $280.00 (including GST). Referral
Fee.
Estimate of commission to
be received by us. This
commission is payable to us
for assisting you to obtain
finance.
0.50% of the principal finance amount (plus GST) shortly after the finance is
provided. We estimate this one-off payment to be $2200.00 (incl. GST)
0.2% per annum of your outstanding loan amount owing payable monthly
(plus GST). We estimate the monthly payment to be $73.33 (incl. GST)
Commission will be paid by
The commission will be paid by the lender documented above to the licensee. The
licensee will then pay some or all of the commission to the credit representative.
Other
benefits
From time to time we receive benefits in the form of conferences and training
sessions provided by the licensee, financiers, or others. The value of these
benefits cannot be ascertained.
Estimate of total fees and
charges payable to the
financier in relation to
applying for the finance.
These fees are payable by
you.
Loan application/Establishment fees 500.00
Valuation fees 300.00
Legal/Documentation/Settlement fees 700.00
Lenders mortgage insurance premium 0.00
Other 0.00
Total 1500.00
These figures above are estimates only and the final figures will be shown in your credit contract or lease.
Some or all of these fees may be paid from the finance proceeds. These fees are payable only once.
We are not aware of any other fees or charges payable to anyone else in relation to the application for finance,
but the financier may impose some additional requirements.
[IF ANY FEES ARE DEFINITELY TO BE PAID FROM THE CREDIT OBTAINED, SPECIFY A REASONABLE ESTIMATE
OF THE AMOUNT OF CREDIT LEFT AFTER PAYING THOSE AMOUNTS AND ANY FEES TO THE BROKER.]
Referral fee
The credit representative has paid or will pay a referral fee of $280 (including GST) to Bob
Blanks – Blank Accounting for referring you to us.
In addition, we receive referrals from a broad range of sources. For example, we may pay
fees to call centre companies, real estate agents, accountants, or lawyers for referring you to
us. These referral fees are generally small amounts and accord with usual business practice.
These are not fees payable by you.
Licensee’s Credit Contract (Credit provider)
Licensee credit contracts must include:
The lender’s name
The amount of credit, with specific disclosure requirements related to
whether the amount of credit is ascertainable
The annual percentage rate under the contract
Calculation of interest charges and total interest charges
Repayment details
Credit fees and charges
Changes affecting interest and credit charges
Statement of accounts
Default rate
Enforcement expenses
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Details of any mortgage or
guarantee
Commissions
Insurance financed by the contract
Procedures for resolving disputes with a consumer.
Credit contracts should also include a description of key obligations of
the lender (which relate to the requirement not to provide consumers
with an unsuitable loan and the consumer’s right to request a copy of
the lender’s assessment that the loan is not unsuitable for the
consumer).
You can recreate/print the following checklist which can be attached to
every client file and should be used to confirm that NCCP compliance
requirements have been met.
Client: ………………………………………………………………………………………………………………..
Representative’s name: …………………………………………………………………………………………
Service provided: …………………………………………………………………………………………………
(e.g. suggesting or assisting a consumer to apply for a particular credit contract [name of contract])
Is the representative authorised to provide this service? Tick Yes/No
Description of major
requirements
Yes No If no, why not? N/A Date
Have you made reasonable enquiries about
the consumer’s requirements and objectives
in relation to the credit contract?
National Credit Act, s117(1)(a)
Have you made reasonable enquiries about
the consumer’s financial situation?
National Credit Act, s117(1)(b)
Have you taken reasonable steps to verify
the consumer’s financial situation?
[List steps]
National Credit Act, s117(1)(c)
Have you made a preliminary assessment
of whether the credit contract will be
unsuitable for the consumer, taking into
account:
the consumer’s requirements and
objectives, and
the consumer’s financial situation?
National Credit Act, s116(1)
Has the consumer asked for a copy of the
preliminary assessment?
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Statements of account
The information to be contained in a statement of account includes:
The period which the statement covers
Opening and closing balances
Credit provided during the statement period
Identity of supplier
Interest charges
Fees and charges debited during the statement period
Payments to or from account
Amounts payable by debtor
Insurance payments
Any alterations.
Guarantees
The Code applies to a guarantee if:
(a) it guarantees obligations under a credit contract; and
(b) the guarantor guarantees a natural person or a strata corporation
The NCCP contains a number of measures aimed at enabling guarantors to
make an informed decision about guaranteeing a loan and making sure that
they understand and agree to the nature and extent of their obligations.
Before the guarantee is signed, the lender must give the prospective
guarantor a copy of the loan and a statutory information statement
explaining their rights and obligations.
This must include a “warning box” where the required warning to
prospective guarantors is printed. A warning box is specifically described
in the law as there are various features of the contract of guarantee that
result in the guarantor being in a vulnerable position. There is usually no
direct benefit accruing to the guarantor from the contract, but the costs to
the guarantor may be very high if things go wrong.
The warning box format is required to be used to enhance the clarity of
the information provided, and the box is required to be placed
immediately above the place where the guarantor is to sign to increase
the likelihood that the guarantor will notice and read
the information.
Failure to do so makes the guarantee un-enforceable.
The NCCP does not preclude the obligations under the Code of Banking
Practice which specifies the rights of bank customers specifically in
regards to guarantees.
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This already includes the obligation on banks to provide a prominent
notice to a proposed guarantor, and before taking a guarantee:
To seek independent legal and financial advice on the effect of the
guarantee
The right to refuse to enter into the guarantee
That there are financial risks involved
That there are rights to limit a guarantor’s liability
That guarantor’s have a right to request additional information about
the facility they are being asked to guarantee.
A sample Warning Box is shown below and contains the relevant
warnings as per: NCCP Regulations 2010 Schedule 1.
IMPORTANT
BEFORE YOU SIGN THINGS YOU MUST KNOW
READ THIS GUARANTEE
AND THE CREDIT
CONTRACT DOCUMENT
Understand that, by signing this guarantee, you may
become personally responsible instead of, or as well
as, the debtor to pay the amounts which the debtor
owes and the reasonable expenses of the credit
You should read the
information statement:
“THINGS YOU SHOULD
KNOW ABOUT
GUARANTEES”
If the debtor does not pay you must pay. This could
mean you lose everything you own including your
home.
You should obtain
independent legal advice
You may be able to withdraw from this guarantee or
limit your liability. Ask your legal adviser about this
before you sign this guarantee.
You should also obtain
independent financial
advice
You are not bound by a change to the credit contract,
or by a new credit contract, that increases your
liabilities under the guarantee unless you have
agreed in writing and have been given written
particulars of the change or a copy of the new credit
contract document
You should make you own enquiries about credit worthiness, financial position
and honesty of the debtor
Default notices
In accordance with Clause 88 of the NCCP, a lender is required to give a
default notice before commencing enforcement proceedings. The default
notice must include certain information, including:
The debtor’s right to make a hardship application or – negotiate any
postponement of enforcement proceedings with the lender
Specifying a period for remedying the default
Specifying the date after which enforcement proceedings may begin
Specifying information about the lender’s approved external dispute
resolution scheme and the debtor’s rights under the scheme
Specifying the debt may be included in a credit-reporting agency’s
credit information file. If the debt remains overdue for 60 days or more.
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Insurance
Australia’s insurance market can be divided into roughly three
components: life insurance, general insurance and health insurance.
These markets are fairly distinct, with larger insurers focusing on only
one type, although in recent times several of these companies have
broadened their scope into more general financial services, and have
faced competition from banks and subsidiaries of foreign financial
conglomerates. With services such as disability insurance, income
protection and even funeral insurance, these insurance giants are
stepping in to fill the gap where people may have otherwise been in
need of a personal or signature loan from their financial institution.
There are many companies offering insurance policies in the Australian
market, but several are in fact underwritten by a limited number of insurers
operating under many brand names. These are known as ‘underwriters’.
Providers such as Coles, Woolworths, Australia Post, Myer, RACV, NRMA,
among others, sell insurance products of these underwriters under their
own brand name. Such companies at times describe themselves as
insurance companies or as providers of financial services, but are better
described as insurance retailers or insurance brokers. Such companies are
generally not exposed to any insurance risks, but receive a commission
(generally 10-20%) on the sale of these insurance products.
Life insurance
Life insurance relates to insurance that covers “the person”’. Life insurance
is a lump sum payment paid to an individual or their beneficiaries in the
event of death or upon being diagnosed with a terminal illness. However,
there are a range of personal insurances that may cover various incidents
or illness and they may be paid as a supplement for income also. The
purpose of life insurance is to provide beneficiaries with financial security.
Life insurers sell independent policies direct to consumers or via an
intermediary such as a broker or financial planner. The most common
policy sold is life insurance within superannuation investment products.
Life insurance premiums paid by a superannuation fund are tax deductible
by the fund from assessable income; while the same premium if paid
directly by the individual member may not be tax deductible.
The following are some main types of life insurance and how they work;
Life cover – also known as ‘term life insurance’ or ‘death cover’, pays a
set amount of money when you die. The money will go to the people
you nominate as beneficiaries on your policy.
Total and permanent disability (TPD) cover – pays a lump sum to
help with rehabilitation and living costs if you are totally and
permanently disabled. TPD is often sold with life cover.
https://en.wikipedia.org/wiki/Life_insurance
https://en.wikipedia.org/wiki/General_insurance
https://en.wikipedia.org/wiki/Health_insurance
https://www.canstar.com.au/life-insurance/
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Trauma cover – provides cover if you are diagnosed with a certain
illness has a significant impact on your life, such as cancer or a stroke.
It is sometimes called ‘critical illness cover’ or ‘recovery insurance’.
Income protection – replaces some of your income if you are unable
to work due to injury or sickness.
Accidental death cover – pays a set benefit if you die because of an
accident (not from an illness or disease)
Critical illness – otherwise known as critical illness cover or a dread
disease policy, is an insurance product in which the insurer is
contracted to typically make a lump sum cash payment if the
policyholder is diagnosed with one of the specific illnesses on a
predetermined list
General insurance
General insurance products sold in the Australian market can roughly be
divided into two classes:
Liability insurance such as compulsory third party (CTP) motor
insurance, worker’s compensation, professional indemnity insurance
and public liability insurance, business insurance;
Property insurance such as home and contents insurance, travel
insurance, and comprehensive motor vehicle insurance
Provisions applying to statutorily mandated or regulated schemes, such as
CTP and workers’ compensation, may differ considerably between states.
Products vary between companies, and consumers should always read
their Product Disclosure Statement (PDS) before they purchase cover.
Consumers should always purchase cover appropriate to their level of
risk.
General insurers sell independent policies direct to consumers or via an
intermediary such as an insurance broker, finance broker or financial
planner. These insurance policies may also be sold via asset suppliers
such as vehicle and equipment sellers or lessors. The insurances offered
often offered at point of sale to ensure the asset is covered before
leaving the sellers/lessors premises.
Health insurance
Health insurance is a type of insurance that helps cover the cost of
medical and surgical expenses.
The Australian Government provides a basic universal health cover
through the Medicare scheme. Medicare is funded by a 2% Medicare
levy paid by most taxpayers.
https://www.moneysmart.gov.au/insurance/life-insurance/income-protection
https://en.wikipedia.org/wiki/General_insurance
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Individuals and families can take out additional health insurance for
services not covered by Medicare or for services provided in private
hospitals. The Australian taxation system penalises higher income
earners who do not take out private health insurance, with a Medicare
Levy Surcharge of 1% to 1.5% being payable by those who do not take
out private health insurance.
There are two main types of health insurance:
Hospital cover – commonly covers the partial or full cost in-hospital
treatment, and hospital costs such as accommodation and surgery. It is
desirable for those that choose to use private hospital services and/or
require immediate treatment that is not otherwise deemed as an
emergency.
Extras Cover – Ancillary or extras cover provides benefits for non-
medical health services such as dental, optical, physiotherapy, and
chiropractic treatment.
This insurance is generally not sold via brokers or financial planners.
Duty of Care
It is good practice for Finance brokers to ask the client questions in relation
to their life and general insurance needs when completing a fact find. This
ensures that the client has considered the possibility of increased risk now
that they own an asset that could be potentially damaged, or that their
partner may need to continue to repay, should they fall ill or pass away.
Other types of loan/lease related insurances
Lenders Mortgage Insurance
Lenders Mortgage Insurance (LMI) is insurance that a lender takes out
to insure itself against the risk of not recovering the full loan balance
should the borrower be unable to meet their loan payments. It is
generally paid by the borrower when they don’t have 20% deposit plus
costs to put towards the purchase of a residential property. Thus, the
loan to value of the asset ratio (LVR) is above 80%. LMI provides
greater access to home ownership, particularly for low income, low
equity or higher-risk borrowers who might otherwise have difficulty
obtaining a home loan. By using LMI, lenders are able to pass on this
risk to a mortgage insurer, which enables the lender to offer the same
loan amount but with less of a deposit. This in turn may lower the cost
of a loan, on the basis that lenders may elect not to charge a higher
interest rate. It also allows property investors to gear at a higher
amount but often the cost of LMI outweighs the taxation benefits and
thus they elect to borrow less as a result.
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Lenders mortgage insurance protects a lender against financial loss if
the borrower defaults on their home loan and the property is
subsequently repossessed and sold. The insurance covers the amount
left to pay on the loan, if the amount recouped from the sale of the
property is not enough to pay off the loan in full to the lender.
The LMI premium is payable at settlement by the lender, but usually
passed on by the lender as a cost to the borrower. The cost varies
depending on the lender, how much is borrowed and the size of the
deposit. The premium may be able to be included as part of the loan
amount or paid upfront on settlement. The lender will advise the finance
broker or borrower of the premium amount on formal approval.
However, it is good practice for a brokers to ensure they have a good
idea of the LMI premiums so that they may advise the borrower in the
costings. It is also good practice to slightly overestimate the LMI if
unsure whether it may be slightly more. On refinancing, LMI may be
payable again. It isn’t possible to transfer an LMI policy to another
lender. However, LMI may be partially refundable if the loan is
terminated early (usually the first year or two only). Each lender can
provide details of its own refund arrangements.
If you, the borrower, have problems and cannot meet your loan
repayments and no other resolution is found, your property may need to be
sold to cover the outstanding loan amount. In this situation, sometimes the
house is sold for less than the amount owing. The LMI insurer may pay
your lender an amount in accordance with the LMI policy, and may then
ask you, the borrower, to repay this sum directly to it.
Loan protection insurance (consumer credit insurance)
Mortgage insurance, also known as home loan insurance or consumer
credit insurance, is a product that protects the borrower from the risk of
default. It can be taken out on both residential and commercial
properties and is also available for owner-occupied and investment
property loans.
Mortgage insurance is designed to cover your mortgage repayments in the
event of your passing, the diagnosis of a critical illness, or if you are totally
and permanently disabled. Your bank might also offer you redundancy
cover if you hold both mortgage and income protection policies.
Consumer Credit Insurance
Consumer credit insurance (CCI) is insurance that covers you if
something happens that affects your capacity to meet the payments on
your loans, leases and other credit. CCI usually covers situations of
unemployment, illness, involvement in an accident, and death.
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Your lender may offer you the opportunity to take out CCI at the time
they approve your loan, and the premium may be included in the
amount you borrow. Beware, as it is expensive and usually of little or no
value. CCI insurance will usually only cover your loan repayments for a
period of three months following job loss.
You can visit the https://www.moneysmart.gov.au/insurance/consumer-
credit-insurance
if this link doesn’t work go to www.moneysmart.gov.au and research
credit insurance.
Car lease protection insurance
Car lease protection insurance can pay out in circumstances such as
involuntary employment, death or total loss of car in an accident. The
exact benefits paid out depend on the terms of your policy, the terms of
your lease and the situation at hand.
Lease protection for unemployment: For example, if you lose your
job and can’t make repayments you might have the choice of keeping
the car, selling it or handing it back to the dealer.
If you choose to keep the car, the insurance policy can help you keep
up with payments until you find a job.
If you choose to hand it back or sell it, your policy might pay the total
amount left owing, minus the market price of the car.
If you opt to keep the car, the repayments required by your policy may
vary. For example, one policy might make you pay one-thirtieth of the
minimum monthly repayment for up to 120 days, while another policy
might pay out a single lump sum.
Lease protection for death or vehicle loss: In the event of death,
policies may pay out the remaining amount owed on the lease. In a total
loss situation where the car is written off after an accident, your policy
might pay benefits equal to the difference between your car insurance
payout and the amount left owing on the lease.
Car lease policies can vary widely, and these are just some of the terms
you may encounter. For example, involuntary employment is the focus
of many policies, but not all options will include death cover. Reading
your policy closely is key to understanding the type of cover it offers.
https://www.moneysmart.gov.au/insurance/consumer-credit-insurance
https://www.moneysmart.gov.au/insurance/consumer-credit-insurance
http://www.moneysmart.gov.au/
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Car gap insurance in action
Car gap insurance is simple in principle. If you have a car loan or have
purchased a car under finance and have an accident resulting in a total
loss, gap insurance will cover the difference between the amount your
car insurance pays and the amount you owe the lender or car dealer.
This amount will typically be the market value of the car at the time of
the accident plus the amount left owing on your car loan.
The exception is if you have an agreed value car insurance policy, in
which case your car insurance will pay that amount instead of the
market value at the time of the accident.
Gap insurance can be particularly important when you consider the
effect depreciation has on the value of a car.
Gap insurance might be more worthwhile in some situations. For
example, if you need a car for work and end up with an outstanding
debt after an accident, you could find it much harder to get the financing
needed for a replacement vehicle.
However, the usefulness depends on the terms of the policy, and you need
to pay close attention to the terms and conditions. Your gap insurance
policy will not pay out if your car insurance doesn’t, and you will also need
to meet the terms and conditions of the car gap insurance policy.
For gap insurance in particular, look at the following:
Payout conditions. Gap insurance policies will typically only pay out in
the event of a successful total loss claim. If your car insurance policy,
for any reason, does not pay the full sum insured, then your gap
insurance will not apply.
Loan conditions. Gap insurance is essentially insurance for your car loan
and may have conditions. For example, if the loan has a very high
interest rate, the insurer may reserve the right not to pay a claim. Your
gap insurance provider might not pay out in the following situations:
The loan has poor terms, for example if the loan is more than
110% of the car’s market value.
The residual or balloon payment is more than 50% of the
purchase price or the market value of the car at the time of
purchase.
Gap insurance has limits on how much the policy will pay out. It’s a
good idea to make sure the limit on your gap insurance is enough to
cover the difference between the amount remaining on the loan and the
amount insured by your car insurance.
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Australian Consumer Law – Unfair contract
terms and personal property securities
Financial services professionals also need to be familiar with two
important pieces of legislation:
Australian Consumer Law
Personal Property Securities
Duty of disclosure
Customers must be informed of their duty of disclosure before they
enter into a contract.
The duty of disclosure requires the licensee and/or credit representative
to inform the client that:
They must be honest when answering the
questions on the application
They must tell the lender anything known to them, and which a
reasonable person in the circumstances would include in answer to the
questions on the application
The answers given will be used by the lender to decide whether or not
to approve the loan/lease, and also when lender’s mortgage insurance
is required, to provide that information to the insurer
The applicant is answering the questions in this way for both
themselves, and anyone else involved in the application e.g. marital
partner.
If they do not answer the questions in this way, the lender may refuse
the application.
When extending, varying, or replacing their mortgage contract your
customer does not have to disclose a matter that:
Diminishes the risk to be undertaken by the lender, or
Is of common knowledge.
Unconscionable conduct
Unconscionable conduct refers to exploiting the weaknesses customers
when selling them credit or financial products for example, selling a
product to a customer who does not understand the nature of the
product because they are under the influence of alcohol, are suffering a
mental infirmity, or have difficulty with the English language.
It is unethical and illegal for a stronger party to proceed with a
transaction, even if they have the consent of a weaker party.
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Financial services providers, licensees and credit representatives must
therefore ensure that clients fully understand the terms of the loan and the
consequences of defaulting on a loan, especially where security is taken.
This becomes even more important in situations where a guarantee is
taken. Practitioners must, therefore, keep comprehensive notes of all
interactions with their clients that provide evidence that their clients were
properly listened to and that no overt or covert manipulation or coercion
was used.
It is important practice to pay particular attention to the relationship
between borrowers and guarantors. A special disability may be
constituted where one party has undue influence over the other party
such as a spouse seeking to use his or her partner as a guarantor. A
similar situation may exist when a child asks a parent to guarantee a
loan. In these situations, the parties should be strongly counselled to
obtain independent legal advice.
Harassment and coercion
Harassment and coercion are more severe forms of unconscionable
conduct. This type of behaviour refers to the use of harsh, or aggressive
language, or physical intimidation to obtain an outcome.
The Competition and Consumer Act 2010 (Australian Consumer Law)
contains a general conduct provision prohibiting the use of physical force
or undue harassment or coercion in connection with the supply of goods
or services or the payment for goods or services. This provision is
mirrored in the state and territory fair trading legislation.
Misleading and deceptive conduct
Misleading and Deceptive Conduct includes telling lies about the product,
omitting information, or telling half-truths. By definition in the Competition
and Consumer Act 2010 , it refers to any statement, action, advertising,
pictorial image, displays, brochures, silence or any conduct that is
misleading or likely to mislead or deceive clients or potential clients. Within
the scope of this definition it is not necessary to show that a person has
actually been misled or deceived. All that is necessary is to show that any
conduct has the capacity or tendency to do so. It is also necessary to prove
intention to mislead or deceive.
In order to reduce the chance of being misleading or deceptive:
Do not make exaggerated claims about a credit product
Use plain English in your oral and written communications
Avoid the use of jargon
Tell the whole truth about the product
If authorised to provide general or personal advice, do not quote
opinions unless genuinely held at the time you give them.
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False representation
False representation refers to untrue statements in connection with the
supply or promotion of goods or services. The Competition and
Consumer Act specifically prohibits false claims about:
The quality, style, model or history of a good or service
Whether the goods are new
The sponsorship, performance characteristics, accessories, benefits and
uses of goods and services
The availability of repair facilities or spare parts
The place of origin of a good (for example, where it was made or
assembled)
A buyer’s need for the goods or services
Any exclusions on the goods and services
Inaccurate or misleading price comparisons (for example ‘was’ and
‘now’ prices)
Representing that an advertised price is the total price that you will
have to pay when in fact it is not
Advertising goods and services at a specific price when it is, or should
have been aware, that it would not be able to supply enough of the
good at the price for a reasonable amount of time – this is called bait
advertising.
Exclusive dealings (or third line forcing)
This refers to situations where a supplier restricts a client’s freedom to
deal with others.
For example, exclusive dealing is said to occur if a bank approves a loan
on the condition that the client moves all accounts to that bank. It is not
exclusive dealing for a bank to approve a loan on the condition the client
opens accounts with the bank, but only if it stops the client from also
having accounts elsewhere.
Another example is supplying a product or service or offering a benefit
on condition that a client acquires a different product or service from a
designated third party. This is known as “third line forcing”. An example
of such conduct is where a finance broker promises the client to get
his/her loan approved if he/she uses a particular builder to build his/her
house.
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Penalties
Orders the court can impose include fines and compensation. For
breaches of the restrictive Competition and Consumer Act 2010 the
penalties can be very high.
Fine amounts can be very severe and will vary from time to time with
amendments to legislation.
However it is fair to say that penalties for individuals can be very high
(into the hundreds of thousands) and can be in the millions for
corporations. Penalties may be applied cumulatively for each breach.
If the conduct has badly affected borrowers the orders for compensation
can be greater than the fines and criminal prosecution.
The Australian Consumer Law
On 1 January 2011 the Australian Consumer Law (ACL) commenced.
The ACL includes:
a national unfair contract terms law covering standard form consumer
and small business contracts;
a national law guaranteeing consumer rights when buying goods and
services;
a national product safety law and enforcement system;
a national law for unsolicited consumer agreements covering door-to-
door sales and telephone sales;
simple national rules for lay-by agreements; and
penalties, enforcement powers and consumer redress options
Activity 5 – Misleading representation
The ACCC website also publishes a list of examples of misleading
representations. You can review these examples at
http://www.accc.gov.au/consumers/misleading-claims-
advertising/false-or-misleading-claims
Compile a list of at least three examples of misleading
representations.
Check the model answers section
http://www.accc.gov.au/consumers/misleading-claims-advertising/false-or-misleading-claims
http://www.accc.gov.au/consumers/misleading-claims-advertising/false-or-misleading-claims
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The ACL applies nationally and in all States and Territories, and to all
Australian businesses. For transactions that occurred prior to 1 January
2011, the previous national, State and Territory consumer laws continue
to apply.
In June 2015 consumer affairs ministers agreed that Consumer Affairs
Australia and New Zealand (CAANZ) conducted a review of the
Australian Consumer Law.
The Terms of Reference outlined that the review would consider the
effectiveness of the current law and whether the law was sufficiently
flexible to address new and emerging issues. This was the first broad
review of Australia’s national consumer law since it commenced on 1
January 2011.
The review concluded in March 2017 with CAANZ providing consumer
affairs ministers with a Final Report. The report was published on 19
April 2017.
What is door-to-door trading? Basically, door-to-door trading is where the
seller, as part of his business practice, calls at your home or tries to sell
you goods or services when they are away from their place of business.
Reminder
The National Consumer Credit Protection Act (NCCP) has Australia wide
jurisdiction and ensures that when marketing regulated loans, a credit
representative or licensee cannot:
Make false or misleading statements.
Harass a potential customer to sign a loan contract. (This includes
repeated telephone calls or calls outside reasonable business hours)
Visit a person’s place of residence to try to persuade that person to
obtain credit unless by prior arrangement. This means that they cannot
cold call door to door. If a meeting at a client’s home is required, prior
consent must be made with all parties who will be involved in the loan.
Failure to comply with the above requirements will result in a breach of
the NCCP, which can result in significant penalties.
When can a seller call on you?
Unless the salesperson has an appointment, he or she may call only
during certain times. These calling times differ between states and
territories, you will need to research where you live.
http://consumerlaw.gov.au/review-of-the-australian-consumer-law/terms-of-reference/
http://consumerlaw.gov.au/review-of-the-australian-consumer-law/final-report/
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Unfair contract terms
Australian Consumer law offers protections to consumers against unfair
contract terms and covers;
Unfair contract terms law covering standard form contracts
national product safety law and enforcement system
Guaranteeing consumer rights when buying goods and services, which
replaces existing laws on conditions and warranties
Common enforcement powers for Australia’s consumer agencies,
including substantiation notices, infringement notices and public
warning notices
Civil penalties for breaches of the Australian Consumer Law, including
civil pecuniary penalties and disqualification orders
Powers for courts to order redress for consumers affected by breaches
of the law.
An important feature of the legislation is that it provides consumers who
are not a party to an action with the ability to be granted redress. This
means that a court can determine that a class of people who are
impacted by unfair contract terms (or indeed other sections of the TPA
or ASIC Act) can be granted relief.
For example, if a fee in a single consumer’s contract is declared unfair,
then all consumers charged that fee may be entitled to a refund. It will
therefore be important for lenders to ensure that credit contract terms
are fair, as well as clear, concise and transparent.
Activity 6 – Unfair Contract Terms
The ACCC website also publishes information about unfair contract
terms for businesses. You can review this information at:
http://www.accc.gov.au/consumers/contracts-agreements/unfair-
contract-terms
What is regarded to be unfair?
Check the model answers section
http://www.accc.gov.au/consumers/contracts-agreements/unfair-contract-terms
http://www.accc.gov.au/consumers/contracts-agreements/unfair-contract-terms
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Personal property securities
Personal property
Under the law (Personal Property Securities Act 2009), personal
property is defined as:
Personal property NOT
goods (including crops and livestock) Land
motor vehicles Building
Planes Fixture
Boats Direct water rights
intellectual property (copyright,
patents, designs)
government-issued licences or rights
bank accounts and debts (sometimes
known as receivables)
most transactions with a pawnbroker
shares and other financial property
private non-government commercial
licenses
serial-numbered property
Serial-number property on the one hand is a particular class of personal
property described in the registration by the serial number only. This
includes the following:
Motor vehicles
Aircraft
Watercraft
Some intellectual property rights:
designs
trademarks
patents or plant varieties
Security interest is interest in personal property which comes from its
transaction and may be paid in:
the form of money
performance of an obligation
a fixed charge
a floating charge
a chattel mortgage
a conditional sale agreement (including an agreement to sell subject to
retention of title)
a hire purchase agreement
a pledge
a trust receipt
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a consignment (whether or not a commercial consignment)
a lease of goods (whether or not a PPS lease)
an assignment
a transfer of title
a flawed asset arrangement
the interest of a transferee under a transfer of an account or chattel
paper
the interest of a consignor who delivers goods to a consignee under a
commercial consignment
the interest of a lessor or bailor of goods under a PPS lease.
Personal property securities register
These interests can be viewed in the PPSR or the Personal Property
Securities Register. It is a noticeboard that makes it easier for financiers not
only to decide whether or not to lend, but also to register using a single
national register. The secured party’s goods or assets, in turn, are protected.
Interests can be used as collateral. The business or individual
(customer, debtor, buyer, lessee, consignee or borrower) who offers the
collateral as security is called the grantor because they grant the
security interest over the collateral to the secured party. In most
circumstances the secured party must—in writing and within 10 business
days after receiving the request—supply information about the debt,
confirm the collateral secured, and provide a copy of the security
agreement. They are entitled to charge a reasonable cost for providing
the copy and other information. If the secured party thinks that the fee
is excessive, they can apply to the court for the fee to be reviewed.
Anyone wanting to know about security interests can search the
register. The most common reasons for searching are:
buyer searching to make sure the goods they are looking to buy do not
have finance owing against them
liquidator or bankruptcy trustee searching for existing security
interests, because they affect other creditors in the
liquidation/bankruptcy
business or financier, searching a potential customer as part of their
due diligence process.
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The Personal Property Securities Act 2009
The Personal Property Securities Act 2009 (Commonwealth) created a
nationally uniform set of rules for the registration and enforcement of
security interests in personal property. This introduction of the personal
property securities regulatory regime provided a greater certainty for
both lenders and borrowers:
lowers the risk for lenders
improve the efficiency of financing against personal property
increases competition among providers of finance
increases the availability and lower the cost of finance for people and
businesses wanting to use personal property as security, in particular
small and medium sized businesses
The Personal Property Securities Amendment (PPS Leases) Bill 2017
enjoins the following:
leases of an indefinite term will not be deemed to be PPS leases unless
and until they run for a period of more than two years
security interests that are created prior will receive certain protections
Australian Privacy Act 1988
The Privacy Act 1988 (Privacy Act) regulates how personal information is
handled. The Privacy Act defines personal information as:
…information or an opinion, whether true or not, and whether recorded
in a material form or not, about an identified individual, or an individual
who is reasonably identifiable.
The Privacy Act 1988 is designed, as it relates to lending, to control the
collection, storage and use of credit information of individuals.
Australian Privacy Principles
The thirteen Australian Privacy Principles consist of the following:
1. Open and transparent management of personal information
2. Anonymity and pseudonymity
3. Collection of solicited personal information
4. Dealing with unsolicited personal information
5. Notification of the collection of personal information
6. Use of disclosure of personal information
7. Direct marketing
8. Cross border disclosure of personal information
9. Adoption, use or disclosure of government related identifiers
http://www.comlaw.gov.au/Series/C2004A03712
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10. Quality of personal information
11. Security of personal information
12. Access to personal information
13. Correction of personal information
APP 1 — Open and transparent management of personal
information
1.1 The object of this principle is to ensure that APP entities manage
personal information in an open and transparent way.
Compliance with the Australian Privacy Principles etc.
1.2 An APP entity must take such steps as are reasonable in the
circumstances to implement practices, procedures and systems
relating to the entity’s functions or activities that:
(a) will ensure that the entity complies with the Australian Privacy
Principles and a registered APP code (if any) that binds the entity;
and
(b) will enable the entity to deal with enquiries or complaints from
individuals about the entity’s compliance with the Australian
Privacy Principles or such a code.
APP Privacy policy
1.3 An APP entity must have a clearly expressed and up to date policy
(the APP privacy policy) about the management of personal
information by the entity.
1.4 Without limiting subclause 1.3, the APP privacy policy of the APP
entity must contain the following information:
(a) the kinds of personal information that the entity collects and
holds;
(b) how the entity collects and holds personal
information;
(c) the purposes for which the entity collects, holds, uses and
discloses
personal information;
(d) how an individual may access personal information about the
individual that is held by the entity and seek the correction of
such information;
(e) how an individual may complain about a breach of the Australian
Privacy Principles, or a registered APP code (if any) that binds the
entity, and how the entity will deal with such a
complaint;
(f) whether the entity is likely to disclose personal information to
overseas recipients;
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(g) if the entity is likely to disclose personal information to overseas
recipients—the countries in which such recipients are likely to be
located if it is practicable to specify those countries in the policy.
Availability of APP privacy policy etc.
1.5 An APP entity must take such steps as are reasonable in the
circumstances to make its APP privacy policy available:
(a) free of charge; and
(b) in such form as is appropriate.
Note: An APP entity will usually make its APP privacy policy available
on the entity’s website
1.6 If a person or body requests a copy of the APP privacy policy of an
APP entity in a particular form, the entity must take such steps as are
reasonable in the circumstances to give the person or body a copy in
that form.
APP 2 — Anonymity and pseudonymity
Individuals must have the option of not identifying themselves, or of
using a pseudonym, when dealing with an APP entity in relation to a
particular matter.
2.2 Subclause 2.1 does not apply if, in relation to that matter:
(a) the APP entity is required or authorised by or under an Australian
law, or a court/tribunal order, to deal with individuals who have
identified themselves; or
(b) it is impracticable for the APP entity to deal with individuals who
have not identified themselves or who have used a pseudonym.
APP 3 — Collection of solicited personal information
Personal information other than sensitive information:
3.1 If an APP entity is an agency, the entity must not collect personal
information (other than sensitive information) unless the information
is reasonably
necessary for, or directly related to, one or more of the
entity’s
functions or activities.
3.2 If an APP entity is an organisation, the entity must not collect
personal information (other than sensitive information) unless the
information is reasonably necessary for one or more of the entity’s
functions or activities.
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Sensitive information
3.3 An APP entity must not collect sensitive information about an
individual unless:
(a) the individual consents to the collection of the information and:
i. if the entity is an agency—the information is reasonably
necessary for, or directly related to, one or more of the entity’s
functions or activities; or
ii. if the entity is an organisation—the information is reasonably
necessary for one or more of the entity’s functions or
activities; or
(b) subclause 3.4 applies in relation
to the information.
3.4 This subclause applies in relation to sensitive information about an
individual if:
(a) the collection of the information is required or authorised by or
under an Australian law or a court/tribunal
order; or
(b) a permitted general situation exists in relation to the collection of
the information by the APP entity; or
(c) the APP entity is an organisation and a permitted health situation
exists in relation to the collection of the information by the entity;
or
(d) the APP entity is an enforcement body and the entity reasonably
believes that:
i. if the entity is the Immigration Department—the collection of
the information is reasonably necessary for, or directly related
to, one or more enforcement related activities conducted by,
or on behalf of, the entity; or
ii. otherwise—the collection of the information is reasonably
necessary for, or directly related to, one or more of the
entity’s functions or activities; or
(e) the APP entity is a non-profit organisation and both of the
following
apply:
i. the information relates to the activities of the organisation;
ii. the information relates solely to the members of the
organisation, or to individuals who have regular contact with
the organisation in connection with its activities.
For permitted
health situation, see section 16B.
http://www.comlaw.gov.au/Details/C2014C00076
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Means of collection
3.5 An APP entity must collect personal information only by lawful and
fair means.
3.6 An APP entity must collect personal information about an individual
only from the individual unless:
(a) if the entity is an agency:
i. the individual consents to the collection of the information
from someone
other than the individual; or
ii. the entity is required or authorised by or under an
Australian law, or a court/tribunal order, to collect the
information from someone other than the individual; or
(b) it is unreasonable or impracticable to do so.
Solicited personal information
3.7 This principle applies to the collection of personal information that is
solicited by an APP entity.
APP 4 — Dealing with unsolicited personal information
4.1 If:
(a) an APP entity receives personal information; and
(b) the entity did not solicit the information;
the entity must, within a reasonable period after receiving the
information, determine whether or not the entity could have collected
the information under Australian Privacy Principle 3 if the entity had
solicited the information.
4.2 The APP entity may use or disclose the personal information for the
purposes of making the determination under subclause 4.1.
4.3 If:
(a) the APP entity determines that the entity could not have collected
the personal information; and
(b) the information is not contained in a Commonwealth record;
the entity must, as soon as practicable but only if it is lawful and
reasonable to do so, destroy the information or ensure that the
information is de-identified.
4.4 If subclause 4.3 does not apply in relation to the personal
information, Australian Privacy Principles 5 to 13 apply in relation to
the information as if the entity had collected the information under
Australian Privacy Principle 3.
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APP 5 — Notification of the collection of personal
information
5.1 At or before the time or, if that is not practicable, as soon as
practicable after, an APP entity collects personal information about an
individual, the entity must take such steps (if any) as are reasonable
in the circumstances:
(a) to notify the individual of such matters referred to in subclause
5.2 as are reasonable in the circumstances; or
(b) to otherwise ensure that the individual is aware of any such
matters.
5.2 The matters for the purposes of subclause 5.1 are as follows:
(a) the identity and contact details of the APP entity;
(b) if:
i. the APP entity collects the personal information from someone
other than the individual; or
ii. the individual may not be aware that the APP entity has
collected the personal information; the fact that the entity so
collects, or has collected, the information and the
circumstances of that collection;
(c) if the collection of the personal information is required or
authorised by or under an Australian law or a court/tribunal
order—the fact that the collection is so required or authorised
(including the name of the Australian law, or details of the court/
tribunal order, that requires or authorises the collection);
(d) the purposes for which the APP entity collects the personal
information;
(e) the main consequences (if any) for the individual if all or some of
the personal information is not collected by the APP entity;
(f) any other APP entity, body or person, or the types of any other
APP entities, bodies or persons, to which the APP entity usually
discloses personal information of the kind collected by the entity;
(g) that the APP privacy policy of the APP entity contains information
about how the individual may access the personal information
about the individual that is held by the entity and seek the
correction of such information;
(h) that the APP privacy policy of the APP entity contains information
about how the individual may complain about a breach of the
Australian Privacy Principles, or a registered APP code (if any) that
binds the entity, and how the entity will deal with such a
complaint;
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(i) whether the APP entity is likely to disclose the personal
information to overseas recipients;
(j) if the APP entity is likely to disclose the personal information to
overseas recipients—the countries in which such recipients are
likely to be located if it is practicable to specify those countries in
the notification or to otherwise make the individual aware of them.
APP 6 — Use or disclosure of personal information
Use or disclosure:
6.1 If an APP entity holds personal information about an individual that
was collected for a particular purpose (the primary purpose), the
entity must not use or disclose the information for another purpose
(the secondary purpose) unless:
(a)
the individual has consented to the use or disclosure of the
information; or
(b) subclause 6.2 or 6.3 applies in relation to the use or disclosure of
the information.
Note: Australian Privacy Principle 8 sets out requirements for the
disclosure of personal information to a person who is not in Australia
or an external Territory.
6.2 This subclause applies in relation to the use or disclosure of personal
information about an individual if:
(a) the individual would reasonably expect the APP entity to use or
disclose the information for the secondary purpose and the
secondary purpose is:
i. if the information is sensitive information—directly related
to the primary
purpose; or
ii. if the information is not sensitive information—related to
the primary purpose;
(b) or the use or disclosure of the information is required or
authorised by or under an Australian law or a court/tribunal
order; or
(c) a permitted general situation exists in relation to the use or
disclosure of the information by the APP entity; or
(d) the APP entity is an organisation and a permitted health situation
exists in relation to the use or disclosure of the information by
the entity; or
(e) the APP entity reasonably believes that the use or disclosure of
the
information is reasonably necessary for one or more
enforcement related activities conducted by, or on behalf of, an
enforcement body.
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Note: For permitted general situation, see section 16A. For permitted
health situation, see section 16B.
6.3 This subclause applies in relation to the disclosure of personal
information about an individual by an APP entity that is an agency if:
(a) the agency is not an enforcement body; and
(b) the information is biometric information or biometric templates;
and
(c) the recipient of the information is an enforcement body; and
(d) the disclosure is conducted in accordance with the guidelines
made by the Commissioner for the purposes of this paragraph.
6.4 If:
(a) the APP entity is an organisation; and
(b) subsection 16B(2) applied in relation to the collection of the
personal information by the entity;
the entity must take such steps as are reasonable in the
circumstances to ensure that the information is de-identified before
the entity discloses it in accordance with subclause 6.1 or 6.2.
Written note of use or disclosure
6.5 If an APP entity uses or discloses personal information in accordance
with paragraph 6.2(e), the entity must make a written note of the
use or disclosure.
Related bodies corporate
6.6 If:
(a) an APP entity is a body corporate; and
(b) the entity collects personal information from a related body
corporate;
this principle applies as if the entity’s primary purpose for the
collection of the information were the primary purpose for which the
related body corporate collected the information.
Exceptions
6.7 This principle does not apply to the use or disclosure by an
organisation of:
(a) personal information for the purpose of direct marketing; or
(b) government related identifiers.
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APP 7 — Direct marketing
7.1 If an organisation holds personal information about an individual, the
organisation must not use or disclose the information for the purpose
of direct marketing.
Note: An act or practice of an agency may be treated as an act or
practice of an organisation, see section 7A.
Exceptions—personal information other than sensitive
information
7.2 Despite subclause 7.1, an organisation may use or disclose personal
information (other than sensitive information) about an individual for
the purpose of direct marketing if:
(a) the organisation collected the information from the individual; and
(b) the individual would reasonably expect the organisation to use or
disclose the information for that purpose; and
(c) the organisation provides a simple means by which the individual
may easily request not to receive direct marketing
communications from the organisation; and
(d) the individual has not made such a request to the Organisation
7.3 Despite subclause 7.1, an organisation may use or disclose personal
information (other than sensitive information) about an individual for
the purpose of direct marketing if:
(a) the organisation collected the information from:
i. the individual and the individual would not reasonably expect
the organisation to use or disclose the information for that
purpose; or
ii. someone other than the individual; and
(b) either:
i. the individual has consented to the use or disclosure of the
information for that purpose; or
ii. it is impracticable to obtain that consent; and
(c) the organisation provides a simple means by which the individual
may easily request not to receive direct marketing
communications from the organisation; and
(d) in each direct marketing communication with the individual:
i. the organisation includes a prominent statement that the
individual may make such a request; or
ii. the organisation otherwise draws the individual’s attention to
the fact that the individual may make such a request; and
(e) the individual has not made such a request to the organisation.
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Exception—sensitive information
7.4 Despite subclause 7.1, an organisation may use or disclose sensitive
information about an individual for the purpose of direct marketing if
the individual has consented to the use or disclosure of the
information for that purpose.
Exception—contracted service providers
7.5 Despite subclause 7.1, an organisation may use or disclose personal
information for the purpose of direct marketing if:
(a) the organisation is a contracted service provider for a
Commonwealth contract; and
(b) the organisation collected the information for the purpose of
meeting (directly or indirectly) an obligation under the contract;
and
(c) the use or disclosure is necessary to meet (directly or indirectly)
such an obligation.
Individual may request not to receive direct marketing
communications etc.
7.6 If an organisation (the first organisation) uses or discloses personal
information about an individual:
(a) for the purpose of direct marketing by the first organisation; or
(b) for the purpose of facilitating direct marketing by other
organisations;
the individual may:
(c) if paragraph (a) applies—request not to receive direct marketing
communications from the first organisation; and
(d) if paragraph (b) applies—request the organisation not to use or
disclose the information for the purpose referred to in that
paragraph; and
(e) request the first organisation to provide its source of the
information.
7.7 If an individual makes a request under subclause 7.6, the first
organisation must not charge the individual for the making of, or to
give effect to, the request and:
(a) if the request is of a kind referred to in paragraph 7.6(c) or (d)—
the first organisation must give effect to the request within a
reasonable period
after the request is made; and
(b) if the request is of a kind referred to in paragraph 7.6(e)—the
organisation must, within a reasonable period after the request is
made, notify the individual of its source unless it is impracticable
or unreasonable to do so.
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Interaction with other legislation
7.8 This principle does not apply to the extent that any of the following
apply:
(a) the Do Not Call Register Act 2006;
(b) the Spam Act 2003;
(c) any other Act of the Commonwealth, or a Norfolk Island
enactment,
prescribed by the regulations.
APP 8 — Cross-border disclosure of personal information
8.1 Before an APP entity discloses personal information about an
individual to a person (the overseas recipient):
(a) who is not in Australia or an external Territory; and
(b) who is not the entity or the individual;
the entity must take such steps as are reasonable in the
circumstances to ensure that the overseas recipient does not breach
the Australian Privacy Principles (other than Australian Privacy
Principle 1) in relation to the information.
Note: In certain circumstances, an act done, or a practice engaged in,
by the overseas recipient is taken, under section 16C, to have been
done, or engaged in, by the APP entity and to be a breach of the
Australian Privacy Principles.
8.2 Subclause 8.1 does not apply to the disclosure of personal
information about an individual by an APP entity to the overseas
recipient if:
(a) the entity reasonably believes that:
i. the recipient of the information is subject to a law, or binding
scheme, that has the effect of protecting the information in a
way that, overall, is at least substantially similar to the way in
which the Australian Privacy Principles protect the information;
and
ii. (ii) there are mechanisms that the individual can access to
take action to enforce that protection of the law or binding
scheme; or
(b) both of the following apply:
i. the entity expressly informs the individual that if he or she
consents to the disclosure of the information, subclause 8.1 will
not apply to the disclosure;
ii. after being so informed, the individual consents to the
disclosure; or
(c) the disclosure of the information is required or authorised by or
under an Australian law or a court/tribunal order; or
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(d) a permitted general situation (other than the situation referred to
in item 4 or 5 of the table in subsection 16A(1)) exists in relation
to the disclosure of the information by the APP entity; or
(e) the entity is an agency and the disclosure of the information is
required or authorised by or under an international agreement
relating to information sharing to which Australia is a party; or
(f) the entity is an agency and both of the following apply:
i. the entity reasonably believes that the disclosure of the
information is reasonably necessary for one or more
enforcement related activities conducted by, or on behalf of, an
enforcement body;
ii. the recipient is a body that performs functions, or exercises
powers, that are similar to those performed or exercised by an
enforcement body.
Note: For permitted general situation, see section 16A.
APP 9 — Adoption, use or disclosure of government related
identifiers
Adoption of government related identifiers
9.1 An organisation must not adopt a government related identifier of
an individual as its own identifier of the individual unless:
(a) the adoption of the government related identifier is required or
authorised by or under an Australian law or a court/tribunal
order; or
(b) subclause 9.3 applies in relation to the adoption.
Note: An act or practice of an agency may be treated as an act or
practice of an organisation, see section 7A.
Use or disclosure of government related identifiers
9.2 An organisation must not use or disclose a government related
identifier of an individual unless:
(a) the use or disclosure of the identifier is reasonably necessary for
the organisation to verify the identity of the individual for the
purposes of the organisation’s activities or functions; or
(b) the use or disclosure of the identifier is reasonably necessary for
the organisation to fulfil its obligations to an agency or a State or
Territory authority; or
(c) the use or disclosure of the identifier is required or authorised by
or under an Australian law or a court/tribunal order; or
(d) a permitted general situation (other than the situation referred to
in item 4 or 5 of the table in subsection 16A(1)) exists in relation
to the use or disclosure of the identifier; or
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(e) the organisation reasonably believes that the use or disclosure of
the identifier is reasonably necessary for one or more
enforcement related activities conducted by, or on behalf of, an
enforcement body; or
(f) subclause 9.3 applies in relation to the use or disclosure.
Note 1: An act or practice of an agency may be treated as an act or
practice of an organisation, see section 7A.
Note 2: For permitted general situation, see section 16A.
Regulations about adoption, use or disclosure
9.3 This subclause applies in relation to the adoption, use or disclosure
by an organisation of a government related identifier of an
individual if:
(a) the identifier is prescribed by the regulations; and
(b) the organisation is prescribed by the regulations, or is included
in a class of organisations prescribed by the regulations; and
(c) the adoption, use or disclosure occurs in the circumstances
prescribed by the regulations.
Note: There are prerequisites that must be satisfied before the matters
mentioned in this subclause are prescribed, see subsections 100(2) and (3).
APP 10 — Quality of personal information
10.1 An APP entity must take such steps (if any) as are reasonable in
the circumstances to ensure that the personal information that the
entity collects is accurate, up to date and complete.
10.2 An APP entity must take such steps (if any) as are reasonable in
the circumstances to ensure that the personal information that the
entity uses or discloses is, having regard to the purpose of the use
or disclosure, accurate, up to date, complete and relevant.
APP 11 — Security of personal information
11.1 If an APP entity holds personal information, the entity must take
such steps as are reasonable in the circumstances to protect the
information:
(a) from misuse, interference and loss; and
(b) from unauthorised access, modification or disclosure.
11.2 If:
(a) an APP entity holds personal information about an individual;
and
(b) the entity no longer needs the information for any purpose for
which the information may be used or disclosed by the entity
under this Schedule; and
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(c) the information is not contained in a Commonwealth record; and
(d) the entity is not required by or under an Australian law, or a
court/tribunal order, to retain the information;
the entity must take such steps as are reasonable in the
circumstances to destroy the information or to ensure that the
information is de-identified.
APP 12 — Access to personal information
Access
12.1 If an APP entity holds personal information about an individual, the
entity must, on request by the individual, give the individual access
to the information.
Exception to access—agency
12.2 If:
(a) the APP entity is an agency; and
(b) the entity is required or authorised to refuse to give the
individual access to the personal information by or under:
i. the Freedom of Information Act; or
ii. any other Act of the Commonwealth, or a Norfolk Island
enactment, that provides for access by persons to
documents;
despite subclause 12.1, the entity is not required to give access to
the extent that the entity is required or authorised to refuse to give
access.
Exception to access—organisation
12.3 If the APP entity is an organisation then, despite subclause 12.1,
the entity is not required to give the individual access to the
personal information to the extent that:
(a) the entity reasonably believes that giving access would pose a
serious threat to the life, health or safety of any individual, or to
public health or public safety; or
(b) giving access would have an unreasonable impact on the privacy
of other individuals; or
(c) the request for access is frivolous or vexatious; or
(d) the information relates to existing or anticipated legal
proceedings between the entity and the individual, and would
not be accessible by the process of discovery in those
proceedings; or
(e) giving access would reveal the intentions of the entity in relation
to negotiations with the individual in such a way as to prejudice
those negotiations; or
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(f) giving access would be unlawful; or
(g) denying access is required or authorised by or under an
Australian law or a court/ tribunal order; or
(h) both of the following apply:
i. the entity has reason to suspect that unlawful activity, or
misconduct of a serious nature, that relates to the entity’s
functions or activities has been, is being or may be
engaged in;
ii. giving access would be likely to prejudice the taking of
appropriate action in relation to the matter; or
(i) giving access would be likely to prejudice one or more
enforcement related activities conducted by, or on behalf of, an
enforcement body; or
(j) giving access would reveal evaluative information generated
within the entity in connection with a commercially sensitive
decision-making process.
Dealing with requests for access
12.4 The APP entity must:
(a) respond to the request for access to the personal information:
i. if the entity is an agency—within 30 days after the request
is made; or
ii. if the entity is an organisation—within a reasonable period
after the request is made; and
(b) give access to the information in the manner requested by the
individual, if it is reasonable and practicable to do so.
Other means of access
12.5 If the APP entity refuses:
(a) to give access to the personal information because of subclause
12.2 or 12.3; or
(b) to give access in the manner requested by the individual; the
entity must take such steps (if any) as are reasonable in the
circumstances to give access in a way that meets the needs of
the entity and the individual.
12.6 Without limiting subclause 12.5, access may be given through the
use of a mutually agreed intermediary.
Access charges
12.7 If the APP entity is an agency, the entity must not charge the
individual for the making of the request or for giving access to the
personal information.
12.8 If:
(a) the APP entity is an organisation; and
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(b) the entity charges the individual for giving access to the
personal information;
the charge must not be excessive and must not apply to the making
of the request.
Refusal to give access
12.9 If the APP entity refuses to give access to the personal information
because of subclause 12.2 or 12.3, or to give access in the manner
requested by the individual, the entity must give the individual a
written notice that sets out:
(a) the reasons for the refusal except to the extent that, having
regard to the grounds for the refusal, it would be unreasonable
to do so; and
(b) the mechanisms available to complain about the refusal; and
(c) any other matter prescribed by the regulations.
12.10 If the APP entity refuses to give access to the personal
information because of paragraph 12.3(j), the reasons for the
refusal may include an explanation for the commercially sensitive
decision.
APP 13 — Correction of personal information
Correction
13.1 If:
(a) an APP entity holds personal information about an individual;
and
(b) either:
i. the entity is satisfied that, having regard to a purpose for
which the information is held, the information is inaccurate,
out of date, incomplete, irrelevant or misleading; or
ii. the individual requests the entity to correct the information;
the entity must take such steps (if any) as are reasonable in the
circumstances to correct that information to ensure that, having
regard to the purpose for which it is held, the information is
accurate, up to date, complete, relevant and not misleading.
Notification of correction to third parties
13.2 If:
(a) the APP entity corrects personal information about an individual
that the entity previously disclosed to another APP entity; and
(b) the individual requests the entity to notify the other APP entity
of the correction;
the entity must take such steps (if any) as are reasonable in the
circumstances to give that notification unless it is impracticable or
unlawful to do so.
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Refusal to correct information
13.3 If the APP entity refuses to correct the personal information as
requested by the individual, the entity must give the individual a
written notice that sets out:
(a) the reasons for the refusal except to the
(b) extent that it would be unreasonable to do so; and
(c) the mechanisms available to complain about the refusal; and
(d) any other matter prescribed by the regulations.
Request to associate a statement
13.4 If:
(a) the APP entity refuses to correct the personal information as
requested by the individual; and
(b) the individual requests the entity to associate with the
information a statement that the information is inaccurate, out
of date, incomplete, irrelevant or misleading;
the entity must take such steps as are reasonable in the
circumstances to associate the statement in such a way that will
make the statement apparent to users of the information.
Dealing with requests
13.5 If a request is made under subclause 13.1 or 13.4, the APP entity:
(a) must respond to the request:
i. if the entity is an agency—within 30 days after the request
is made; or
ii. if the entity is an organisation—within a reasonable period
after the request is made; and
(b) must not charge the individual for the making of the request,
for correcting the personal information or for associating the
statement with the personal information (as the case may be).
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Credit Reporting Privacy Code (CR code) 1.2
April 2014
Part IIIA of the Privacy Act 1988 (Privacy Act) regulates consumer credit
reporting in Australia. Part IIIA is supported by the Privacy Regulation
2013 and the Privacy (Credit Reporting) Code 2014 (CR code).
One of the objects of the Privacy Act is to facilitate an efficient credit
reporting system while ensuring that the privacy of individuals is
respected. In recognition of that objective, the laws about credit
reporting are intended to balance individuals’ interest in protecting their
personal information with the need to ensure that credit providers have
sufficient information available to assist them to decide whether to
provide an individual with credit.
The Australian credit reporting system also helps ensure that credit
providers are able to comply with their responsible lending obligations
under the National Consumer Credit Protection Act 2009 administered
by the Australian Securities and Investment Commission (ASIC).
In summary, the key requirements of Part IIIA include:
Strict limits on the type of information, which can be held on a person’s
credit information file by a credit-reporting agency. There are also limits
on how long the information can be held on file
Limits on who can obtain access to a person’s credit file held by a
credit-reporting agency. Generally only lenders may obtain access and
only for specified purposes. Real estate agents, debt collectors,
employers and general insurers are barred from obtaining access.
Limits on the purposes for which a lender can use a credit report
obtained from a credit-reporting agency. These include:
To assess an application for consumer credit or commercial credit
(but they must seek consent if they are using a consumer credit
report to assess an application for commercial credit, or using a
commercial report to assess an application for consumer credit)
To assess whether to accept a person as guarantor for a loan
applied for by someone else
To collect overdue payments
Prohibition on disclosure by lenders of credit worthiness information
about an individual, including a credit report received from a credit-
reporting agency, except in specified circumstances.
These include:
Where the disclosure is to another lender and the individual has
given consent
To a mortgage insurer
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To a debt collector (but lenders can only give limited information
contained in or derived from a credit report issued by a credit
reporting agency)
Rights of access and correction for individuals in relation to their own
personal information contained in credit reports held by credit reporting
agencies and lenders.
Credit reporting
Part IIIA adopts terminology, including terms for participants in the credit
reporting system. The term ‘affected information recipients’ (AIRs) is used
to refer to various third parties, such as:
mortgage insurers
trade insurers, to whom credit-related personal information is disclosed
by CRBs and credit providers
a person for the purpose of processing an application for credit made to
the credit provider; or
a person who manages credit provided by the credit provider for use in
managing that credit;
professional legal adviser
The recipient of the regulated information should manage it in an open
and transparent way that is clearly expressed in an up-to-date policy. This
should be made available in the appropriate form and is free of charge.
The policy on the Regulated information must contain the following:
the kinds of regulated information and the purposes for collecting,
holding, using and disclosing this regulated information
how an individual may access regulated information, complain about at
the failure in compliance, and deal with such a complaint
If a mortgage insurer or trade insurer holds or held personal information
about an individual; and this was disclosed by a credit reporting body or
credit provider, the insurer must not use or disclose this information.
This does not apply though if:
the mortgage insurer will use it for mortgage insurance purposes
related to the individual
any purpose arising under a contract for mortgage insurance that has
been entered into between the credit provider and the insurer
for a trade insurance purpose of the insurer in relation to the individual
as required or authorised by or under an Australian law, court, or
tribunal order.
Further to the above, certain credit reporting can only to be undertaken
by corporations. It is important to understand the penalties applicable to
brokers who go outside the rules of the privacy legislation.
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Certain credit reporting only to be undertaken by
corporations
A person must not (in the course of trade or commerce) carry on and
act on a corporation’s behalf in the course of carrying on a credit
reporting business unless the person is a corporation.
A person who intentionally contravenes this section is guilty of an
offence punishable, on conviction, by a fine not exceeding $30,000.
In summary, Finance/Mortgage Brokers who act on behalf of a bank are
deemed to represent that bank under the terms of the Privacy Act and are
therefore covered by the same provisions and penalties. It is crucial that
under all circumstances they are conscious of the act and what it means.
Full disclosure of all Privacy Act regulations can be found at:
http://www.oaic.gov.au/privacy/privacy-act/
Positive credit reporting
The Government announced on 2 November 2017 that it would legislate
for a mandatory comprehensive credit reporting regime (CCR). As of 1
July 2018, recording positive credit information on credit histories was
made mandatory for all credit providers. This is intended to allow
lenders to better assess risk using a fuller picture on potential
borrowers’ credit history and could be beneficial for people who have the
means to take on a loan but may have had a few blemishes in the past,
such as one or two missed payments.
What is Negative Credit Reporting?
Negative credit reporting is the system Australia operated under until
March 2014, which was based around only making a note of negative
credit events. Lenders based their assessments of a potential borrower
applicant solely on whether the applicant had any negative reports on
their credit history, such as missed repayments or defaults.
Banks, credit unions and other lenders could access information
concerning a potential customer’s credit applications – but not whether
the application was approved or not. The credit report also included
details of any overdue debts, defaults, bankruptcy, or court judgements.
What is Comprehensive (Positive) Credit Reporting
(CCR)?
Positive credit reporting is Australia’s new credit reporting system aimed
at making it easier for lenders to form comprehensive and balanced
assessments of applicants’ credit histories. The credit report includes
information about current accounts held, what accounts have been
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opened and closed, the date default notices were paid and whether
repayments were met.
While some may raise concerns over the increased amount of personal
financial information being given to banks, the comprehensive credit
reporting system is largely seen as a positive step for consumers and
lenders, encouraging responsible lending practices and enabling
consumers to build a more comprehensive and positive credit report that
could help them get a better deal from their chosen lender.
What does it mean for finance brokers?
With financial institutions providing a more complete picture of borrower
behaviour, it becomes a very effective tool for brokers to have a lot of
the initial discovery in a fraction of the time. More information means
greater efficiency, which in turn can only be a good thing for loan book
growth and client satisfaction.
Perhaps the most immediate and profound change will be around loan
approval, largely because the broker and lenders are both working with
similar data sets. With positive reporting, the broker can work with the
client to identify reparable financial behaviours that will ultimately
improve their creditworthiness — in time securing the loan or negotiating
a better rate. Not only can the relationship be maintained, but it can
build the kind of trust that creates a lifelong client relationship.
Whilst there are many positives for finance broker under the new
regime, there are some procedural changes that should be implemented
including training for finance brokers (Credit representatives) and more
comprehensive information for clients. Finance brokers will be required
to make their clients more aware of the benefits and repercussions of
their credit report through discussion and possible other information
brochures/key fact sheets.
For those clients with an adverse credit history, the business will need to
adopt a system where the brokers can implement a longer term strategy
to guide the client to adopt better credit practices in improving their
chances for a loan and the possibility of a better interest rate. By signing
a privacy form, clients should have the ability to request the finance
broker, as agent, to obtain their credit report before commencing to
application with the lender.
Tax file numbers (TFN)
These Guidelines are issued under Section 17 of the Privacy Act 1988.
They are intended to protect the privacy of individuals by restricting the
use of tax file number information. The Privacy Act provides that a breach
of the Guidelines is an interference with the privacy of an individual. An
affected individual may complain to the Privacy Commissioner. Where
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appropriate the individual may seek compensation. Unauthorised use or
disclosure of tax file numbers is also an offence under the Taxation
Administration Act 1953 with a penalty of up to $10,000 fine, two years
imprisonment, or both.
Use and disclosure of tax file number information
The tax file number is not to be used or disclosed to establish or confirm
the identity of an individual for any purpose not authorised by taxation,
personal assistance law or superannuation law (whether directly or
indirectly) to match personal information in particular. Matching of tax
file number information is not to be undertaken by government
agencies, employers, investment bodies or the trustees of
superannuation funds for any purpose not authorised by taxation,
assistance agency or superannuation law.
If an individual provides information to a TFN recipient for a purpose not
connected with the operation of a taxation, personal assistance or
superannuation law and that information incidentally contains a TFN, the
individual providing the information may remove the TFN.
The collection, use and disclosure of TFNs by investment bodies to build
up a database or to cross-match personal information is not permitted.
The legal basis for collection must always be made clear, including the
law (or laws) that allows the investment body to request or collect the
TFN and the purpose for which the TFN is requested or collected.
The Commissioner of Taxation and APRA identify the types of entities
who may request TFNs under taxation and superannuation law. The
main way they make this information available is by maintaining a list of
those people, agencies, organisations and other entities allowed to ask
for and receive TFNs, what they will do with it and who they can disclose
it to. This list is known as the Classes of lawful tax file number recipients
document, and it is published on the OAIC website.
Examples of lawful TFN recipients include:
the ATO
DHS is an agency that has authority to request a TFN from recipients of
personal assistance payments such as pensions, benefits and
allowances
an employer
banks and other financial institutions
superannuation funds
higher education providers
tax agents, accountants and solicitors
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It should also be clear that an investor who is exempt from quoting a
TFN can claim that exemption rather than quoting. Information on the
circumstances where an investor can claim an exemption from quoting a
TFN should clearly state which taxation law authorises the collection of
TFN information and that quoting a TFN is optional.
Generally, investment bodies need to ask for an individual’s TFN
whenever each new investment is taken out. However, investment
bodies must allow the individual to choose to quote the TFN in the first
instance in relation to some investments. When inviting an investor to
quote their TFN, a clear explanation should be provided to the individual
that the TFN will be automatically used for future investments within the
terms of the facility, unless the investor indicates at any time that they
do not wish for their TFN to be applied to a particular investment.
SPAM
The Australian Communications & Media Authority (ACMA) is responsible
for enforcing the Spam Act 2003, which prohibits the sending of
‘unsolicited commercial electronic messages’ (known as Spam) with an
‘Australian link’. A message has an Australian link if it originates or was
commissioned in Australia, or originates overseas but was sent to an
address accessed in Australia.
Definition of spam
The Spam Act 2003 refers to spam as ‘unsolicited commercial electronic
messaging’.
The legislation covers more than just e-mails: mobile text messaging
and other electronic messaging is also covered.
Voice to voice telemarketing is not covered.
A key attribute of the messaging covered by the legislation is that it is
commercial in nature – it either offers a commercial transaction, or
directs the recipient to a location where a commercial transaction takes
place.
To be considered spam, the message must have been sent without the
recipient’s consent. Consent may be expressly given, or may be
inferred from the behaviour or business or other relationships of the
recipient.
There is no reference to bulk messaging – a single unsolicited
commercial electronic message could be Spam, although enforcement
would be unlikely.
Of more recent times Spam is being used predominantly for the
marketing of alleged quick money making opportunities the supply of
so-called medical enhancements.
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Accurate information about message originator
The Spam Act 2003 requires that all commercial electronic messaging
contain accurate information about the message’s originator. This will
most commonly be the actual sender of the message, but may be the
person or organisation that authorised the sending of the message. The
information must be reasonably likely to remain correct for a period of
30 days after the sending of the message.
Functional unsubscribe facility
The Spam Act 2003 requires that all commercial electronic messaging
contain a functional ‘unsubscribe’ facility to allow people to opt out from
receiving messages from that source in the future. The unsubscribe
facility must be reasonably likely to be able to receive and act on
unsubscribe messages for a period of 30 days after the sending of the
message. A request to opt out must be honoured within five working
days. The acceptable forms of the facility will be specified by regulation
and may vary between technologies.
Formal warnings
The ACMA may choose to issue a formal warning, rather than issue an
infringement notice or initiate a full court proceeding. This would
typically be done where the ACMA was satisfied that the contravention
was largely inadvertent and would not be repeated, or in other cases
where a warning would suffice to change the contravening behaviour.
Infringement notices
The ACMA may choose to issue infringement notices for contraventions
of the legislation, instead of initiating a full court proceeding. A person
who receives an infringement notice may refuse to pay, but would then
be subject to a court action, where, if the contravention was proven,
they could be penalised at a higher rate.
Infringement notices and penalties
The infringement notice penalties for sending spam: Fine amounts for
individuals can be very severe and will vary from time to time with
amendments to legislation.
Penalties of up to $1.8 million a day apply to repeat corporate offenders.
The penalty units referred to in the Spam Act are equal to $180 each. For
example the penalty under section 25(5)(b) of the Spam Act for a
company with a previous record of spamming and who sent two or more
spam messages on a given day without consent is a maximum fine of
10,000 penalty units. This equates to a maximum penalty of $1,800,000.
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Cyber Security Strategy
The Australian Cyber Security Strategy has been developed over 18
months of intense consultation with more than 190 organisations and
across business, government and academia, in Australia and overseas.
This is a national strategy; the government and the private sector need
to work in partnership to set the strategic agenda for Australia and co-
design initiatives within the strategy.
This strategy establishes five themes of action for Australia’s cyber
security to 2020:
1. A national cyber partnership: Between government, researchers and
business including regular meetings to strengthen leadership and
tackle emerging issues.
2. Strong cyber defences: To better detect, deter and respond to
threats and anticipate risks.
3. Global responsibility and influence: Working with our international
partners through our new Cyber Ambassador and other channels to
champion a secure, open and free internet while building regional
cyber capacity to crack down on cyber criminals and shut safe
havens for cybercrime.
4. Growth and innovation: Helping Australian cyber security businesses
to grow and prosper, nurturing our home-grown expertise to
generate jobs and growth, and support new business models,
markets and investment for all businesses that are enabled by
secure products and services.
5. A cyber smart nation: Creating more Australian cyber security
professionals by establishing Academic Centres of Cyber Security
Excellence in universities, fostering skills throughout the education
system and raising awareness of cyber security to enable all
Australians to be secure online
CERT Australia works closely with other Australian Government agencies
and international CERTs, to provide Australian businesses with the best
advice possible, as soon as possible. It is also a key element in the
Australian Cyber Security Centre, sharing information and working
closely with the Australian Security Intelligence Organisation, the
Australian Federal Police, the Australian Signals Directorate, the Defence
Intelligence Organisation and the Australian Criminal Intelligence
Commission
https://cybersecuritystrategy.dpmc.gov.au/index.html
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Money laundering and terrorism financing
‘Money laundering’ is a term used to describe the way some criminals
use the financial system to hide or disguise the proceeds of crimes.
The process of money laundering enables criminals to distance
themselves from how the money was generated and makes the tracing
of the funds and prosecution difficult. The ‘laundered’ money is used for
further criminal activity or for legitimate business purposes.
Terrorist groups also disguise the source, purpose and destination of
funds. The term ‘terrorism financing’ includes the financing of terrorist
acts, and of terrorists and terrorist organisations. The financing of
terrorism may include the provision of any kind of asset in any form
including, but not limited to: bank credits, travellers’ cheques, bank
cheques, money orders, share securities, bonds, drafts and letters of
credit. It may be that these come from ‘dirty’ or ‘clean’ funds or from
other assets.
Terrorism financing and money laundering are both serious crimes.
The purpose of the AML/CTF Act is to regulate financial transactions by
establishing an audit trail or transaction history, which will help detect
criminal activity and provide evidence for investigation.
There are three stages to laundering money:
Illegal money is deposited into the financial system. This can be done in
a variety of ways such as splitting large amounts of cash into smaller
sums for direct deposit into bank accounts, or by buying instruments
such as cheques or money orders, which are then deposited into
accounts at other locations.
Once the funds are in the financial system, the money launderer might
carry out a series of transfers to distance the sums from their original
source. The criminal might also try to disguise the transfers as
payments for goods or services.
The money launderer moves the funds into the legitimate economy, for
example by buying real estate, business ventures or assets.
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The Anti-Money Laundering and Counter-Terrorism
Financing Act 2006 (AML/CTF Act)
The AML/CTF Act was passed on 12 December 2006. The legislation
forms part of a package that will implement reforms to prevent and
detect money laundering and terrorism financing and bring Australia into
line with international standards.
Scope of the AML/CTF Act
The AML/CTF Act covers the financial sector, gambling sector and bullion
dealing and any other professionals or businesses that provide particular
‘designated services’. The AML/CTF Act imposes a number of obligations
on businesses when they provide these designated services. These
obligations include:
Customer due diligence (identification, verification of identity and
ongoing monitoring of transactions)
Reporting (suspicious matters, threshold transactions and international
funds transfer instructions)
Record keeping, and
Establishing and maintaining the AML/CTF program.
Under the AML/CTF Act, businesses determine the way in which they
meet their obligations based on their assessment of the risk of a
customer facilitating money laundering or terrorism financing.
The AML/CTF Act sets out general principles and obligations. Details of
these obligations on businesses are set out in subordinate legislative
instruments known as the AML/CTF Rules.
The role of Australia’s financial intelligence unit, The Australian
Transaction Reports and Analysis Centre (AUSTRAC)
(www.austrac.gov.au) has been expanded to include national regulation
of the AML/CTF Act. It has supervisory, monitoring and enforcement
control over a diverse range of business sectors.
In order not to delay the implementation of the AML/CTF Act 2006, the
Australian Government made a decision to address technical
amendments in subsequent legislation. The Anti-Money Laundering and
Counter-Terrorism Financing Amendment Act 2007 make these
amendments.
http://www.austrac.gov.au/
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Requirements under the AML/CTF Act
The AML/CTF reforms impose obligations on businesses or individuals
who offer services that could be exploited to launder money or to
finance terrorism. Examples of these businesses or individuals are
financial institutions, banks, credit unions, building societies, hire
purchase companies, foreign exchange dealers, or fund managers.
Other specialised operations such as bullion dealers, asset managers,
custodial service companies, gambling enterprises and bookmakers are
also covered.
Under the new regulations, these businesses or individuals are required
to comply with the AML/CTF obligations only when they provide
‘designated services’.
Designated services include:
Opening an account
Accepting money on deposit
Making a loan
Issuing a debit card
Issuing travellers’ cheques, and
Sending and receiving instructions on electronic funds transfers.
The new obligations for businesses include:
Customer due diligence (identification, verification of identity and
ongoing monitoring of transactions)
Reporting (suspicious matters, threshold transactions and international
funds transfer instructions)
Record keeping
Establishing and maintaining the AML/CTF program.
Reporting entities are required to develop ‘risk-based’ systems and
controls. This risk-based approach allows flexibility in the assessment
and implementation of measures to reduce the risk of money laundering
and terrorism financing. The key to the new reforms is for the reporting
entity to know their customer.
Impact on business and reporting obligations
Businesses that provide designated services under the AML/CTF Act may
be required to collect customer information to protect the business from
illegal criminal activity.
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The types of businesses providing these services include:
Banks, credit unions, building societies, leasing and hire purchase
companies, issuers of traveller’s cheques, foreign exchange dealers,
asset management companies, remittance dealers, financial planners
who arrange for the issue of financial products, life insurers,
superannuation funds, custodial service companies, cash couriers and
securities dealers
The gambling sector, including casinos, bookmakers, tabs, clubs and
pubs, internet and electronic gaming service providers, and
Bullion dealers.
The Australian Government’s Attorney-General’s Department lists the
new obligations on reporting entities as follows:
Requirements to monitor customer transactions during their provision
of the designated service to identify, mitigate and manage the risk that
the provision of the designated service may involve or facilitate money
laundering or terrorism financing.
Extension of existing significant cash transaction reporting obligations
to some non-cash transactions such as e-currency.
Requirements to supply originator information in domestic and
international funds transfer instructions (subject to certain exceptions).
Requirements to report movements of bearer negotiable instruments to
AUSTRAC if requested to do so by a police officer or customs officer.
There is no threshold for the bearer negotiable instruments reporting
requirement.
Expansion of existing ‘suspicious transaction’ reporting obligations to
‘suspicious matter’ reporting as not all designated services under the
AML/CTF Act involve transactions.
Under the Financial Transactions Reports Act 1988 (FTR Act), customers
are required to provide 100 points of identification using documents
such as a passport, drivers licence and utilities notices to make up the
required points. Alternatively, they can have their identity confirmed by
an ‘acceptable referee’.
AML/CTF legislation requires businesses to determine the appropriate
level of required identification and verification subject to the money
laundering and terrorism financing risk. In addition, the identification
obligations are extended to a wider number of services than currently
covered under the FTR Act.
AML/CTF legislation obligations also extend to the monitoring of
customer transactions during the provision of the designated service.
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Identification requirements
To verify the identity and existence of a person from independent
documents (and to confirm they are who they say they are), there is a
requirement to sight an original or certified copy of the following
documents:
A Primary Photographic Identification Document or, (if a primary
photographic identification document is not owned by the individual
being identified)
A Primary Non-Photographic Identification Document AND a Secondary
Identification Document.
There is also a requirement to verify the customer’s full name, and
either the customer’s date of birth or the customer’s residential
address
recorded in the application to the identification document.
Documents written in a language that is not English must be
accompanied by an English translation prepared by an accredited
translator.
The list of acceptable identification documents are:
A ‘Primary Photographic Identification Document’
A ‘Primary Non-Photographic Identification Document’
A ‘Secondary Identification Document’
Primary Photographic Identification Document
The following constitute primary photographic documents:
Current Australian Driver’s Licence containing the person’s photograph
Australian Passport that is current or expired within the preceding two
years
Card issued under the State or Territory, for the purpose of proving a
person’s age, containing a photograph of the person in whose name the
card is issued
Foreign passport (or similar international travel document) that
contains the persons photograph and signature.
Primary Non-Photographic Identification Document
The following constitute primary non-photographic documents:
Australian birth certificate (or birth extract)
Australian citizenship certificate
Pension card issued by Centrelink
Health card issued by Centrelink.
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Secondary Identification Document:
The following constitute secondary identification documents:
An original notice issued to an individual of a kind listed below, that
contains the name of the individual and his/her residential address:
Issued by the Commonwealth or a State or Territory within the
preceding 12 months that records the provision of financial
benefits
Issued by the Australian Taxation Office within the preceding 12
months, that records a debt payable to or by the individual
Issued by a local government body or utilities provider within the
preceding three months, that records the provision of services to
that address or to that person.
In relation to a person under the age of 18, a notice that:
Was issued to a person by a school principal within the preceding
three months
Contains the name of the person and his or her residential
address
Records the period of time that the person attended at the
school.
Foreign driver’s licence that contains a photograph of the person in
whose name it was issued
National Identity Card issued by a foreign government containing a
photograph and signature of the person in whose name the card is
issued.
Obligations of finance brokers
Financial institutions are required to advise their accredited brokers of
their policies and procedures for identifying customers. All finance
brokers need to be aware of the legislation and comply with AML/CTF
training requirements.
Finance brokers who are holders of an Australian Financial Services
(AFS) licence and only provide the designated service specified in
section 6 of the Anti-Money Laundering and Counter Terrorism Financing
Act 2006 (AML/CTF Act), are required to comply with suspicious matter
reporting (SMR) obligations.
Likewise, finance brokers who provide one or more other designated
services and are not merely acting as agents of another reporting entity,
are obliged to report suspicious matters to AUSTRAC.
Generally the responsibility for reporting a suspicious matter to AUSTRAC
rests with the reporting entity (lender) not the agent (finance broker).
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Finance brokers who are not agents but are providing services to lenders
under a contractual agreement do not have any SMR obligations under
the AML/CTF Act, unless they themselves are providing one or more of
the specified services designated in the Act.
The Anti-Money Laundering and Counter-Terrorism Financing Rules
(AML/CTF Rules) were updated in June 2014 and imposed a number of
new obligations on the financial industry
AML3
These new customer due diligence compliance requirements were
required to be met by the 1st January 2016. Key changes to the
obligations require financial institutions and their third party referrers to
have greater visibility of ownership of non-individual customers (i.e.
companies, partnerships and trusts) to determine who ultimately
benefits from any profits generated.
The three areas of significant change in the AML3 standard pertain to
enhanced understanding of:
beneficial owners;
Politically Exposed Persons (PEP’s); and
settlors of trusts.
Activity 7 – The Anti-Money Laundering and
Counter-Terrorism Financing Act (AML/CTF Act)
The AUSTRAC website offers an Introduction to AML/CTF:
http://www.austrac.gov.au/businesses/legislation/amlctf-act
What is the purpose of this legislation?
Check the model answers section
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Other legislation
As a financial services provider you should also be aware of other
legislation such as:
Anti-discrimination law
In New South Wales, the Real Property Act.
Anti-discrimination law
Laws about discrimination are made at both the Commonwealth and the
State and Territory level. These laws include a range of grounds on which
individuals may lodge a complaint including discrimination because of
race, sex, disability and age. Individuals can lodge complaints about
discrimination, harassment and bullying based on these grounds.
The Australian Human Rights Commission is an independent statutory
organisation to protect and promote the human rights of all people in
Australia. It is responsible for administering the following federal laws:
Age Discrimination Act 2004
Disability Discrimination Act 1992
Human Rights and Equal Opportunity Commission Act 1986
Sex Discrimination Act 1984
Racial Discrimination Act 1975.
It is against the law to discriminate, harass or bully on the grounds of:
Sex, including pregnancy, marital status, family responsibilities and
sexual harassment
Disability, including temporary and permanent disabilities, physical,
intellectual, sensory, psychiatric disabilities, diseases or illnesses,
medical conditions, work related injuries, past, present and future
disabilities, and association with a person with a disability
Race, including colour, descent, national or ethnic origin, immigrant
status and racial hatred
Age, covering young people and older people, or
Sexual preference, criminal record, trade union activity, political
opinion, religion or social origin (in employment only).
With regard to lending, a borrower should not be discriminated against
in their enquiries nor denied credit on the grounds listed above. This
means a borrower’s application must be considered on its merits rather
than on personal attributes. You should only ask a borrower questions
that are relevant to assessing their eligibility and suitability for the
financial product/service being offered.
https://www.humanrights.gov.au/
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Real Property Act (NSW)
On 14 May 2009 the Real Property and Conveyancing Legislation
Amendment Act 2009 (NSW) was passed. This amended legislation
makes several key changes to the Real Property Act (RPA) and
Conveyancing Act, both of which significantly impact lenders.
Borrower identification requirement
Lenders are required to take ‘reasonable steps’ to ensure the person
who signs the mortgage is the mortgagor using the 100 points ID
scheme.
Record keeping
The lender must keep records of the steps taken to verify the
mortgagor’s identity and copies of the identification documents must be
sighted for 7 years from the date of
registration.
Identification requisitions
The Registrar-General (RG) is empowered to make requisitions of the
lender to determine whether or not the identification requirements have
been complied with. These requisitions can be made before or after
registration.
Failure to take reasonable steps to identify the mortgagor can result in
the RG cancelling the registration of the mortgage. This can also occur
where the lender knowingly allowed a forged mortgage to be registered.
Under ‘constructive notice’ the RG can point to the lender and say, “He
ought to have known about the fraud based on the material he had
before him”.
Confirmation of identity under the NSW Real Property Act
1900 No 25
A recent change to the Real Property Act 1900 recommends:
that before presenting a mortgage for lodgement, the mortgagee must
take reasonable steps to ensure that the person who executed the
mortgage is, or is to become, the registered proprietor of the land to be
mortgaged, and
that a witness to a land dealing or caveat must have known the person
signing the dealing or caveat for more than 12 months or must have
taken reasonable steps to ensure the identity of that person.
http://www.legislation.nsw.gov.au/maintop/view/inforce/act+25+1900+
cd+0+N
http://www.legislation.nsw.gov.au/maintop/view/inforce/act+25+1900+cd+0+N
http://www.legislation.nsw.gov.au/maintop/view/inforce/act+25+1900+cd+0+N
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Section 3 Managing information
We all need information to facilitate managing the various roles we
undertake in financial services organisations. Whether it is people,
finance or operations, managing information is vital.
One aspect of running an effective organisation is ensuring that you
understand the documents you deal with on a day-to-day basis.
Understanding relevant documents
Understanding different types of documents may mean undertaking
research and regular training of the products your organisation provides
for its customers, and making sure you know how to handle various
forms correctly, clearly and concisely.
You will need to regularly sort through documents to decide on their
relevance to your organisation.
Key documents such as originals (e.g. a verified copy of a birth
certificate) or contracts, or application forms should be read and stored
in a secure filing system for future reference. If there needs to be any
action taken with such documents, make sure you do so in the way your
organisation’s policies and procedures require.
Analysing, checking and organising documents
As a finance or mortgage broker part of your role is to ensure your
client’s documents and other paperwork are thoroughly checked and
organised in an acceptable manner.
The information will not be useful if it is not accurate or complete.
Analysing, checking and organising your documents regularly
throughout any work progress will save time in the long run and
demonstrate professionalism to your customers.
You may already have checklists that are invaluable to your area of
operation. If this is done correctly it will assist you to ensure that each
process is consistently carried out in the correct manner.
Managing any information and/or documents must be done strictly in
accordance with the policies and procedures of your organisation, and/or
those of your licensee.
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Presenting
information
As a professional in the financial services industry, you present information
to your clients, lenders and other relative stakeholders. It is important for
you to present this information in a manner that is appropriate to the user.
There are a number of questions you will need to ask yourself, if you
wish to present your information suitably.
Who will be your audience?
Will the presentation be written, oral or both?
How many people will you be presenting to?
What do they already know about the information?
What is their level of interest?
Documentation used in the finance industry
We have previously explored the documents that are required in
accordance with the NCCP’s responsible lending obligations, as listed
below:
Credit guide
Written quote
Preliminary assess
ment
Credit proposal disclosure
The following documents listed are discussed further in Module 2 of the
learner guide as they relate the loan/lease application process. However,
it is important to understand the importance of managing the
information within your CRM system. Client records must be securely
stored for seven years and only made available those who have
authority to access the information such as the licensee or ASIC.
Activity 8 – Understanding documents
1. What are the benefits of reading and understanding
documentation?
2. What are the likely repercussions if documents are not
carefully checked, analysed and understood?
Check the model answers section
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Credit Guide & Privacy
and consent form
Along with the ACR’s profile this guide is handed to the clients at initial
interview and it sets out the services that are offered along with the Privacy
Policy of that organisation and the complaints procedure.
Needs Review/fact
Find
By using a Client Needs Review/Fact Find you will have all the information
required to form an opinion as to what type of loan best suits the clients’
requirements and their affordability for the finance. At the same time you are
acting with best practice to ensure that any further needs such as insurances
and ancillary services.
Costing sheet for fees
and charges
Estimate of total fees and charges payable to the financier in relation to
applying for the finance. This information is completed early to determine the
required loan amount. It will form part of the credit proposal.
Interview notes/file
notes
Your interview notes will go a long way to avoid any adverse opinions from any
audit that may be undertaken by any aggregator company or ASIC official. Whilst
documents required under NCC such as a fact find/client needs review, preliminary
assessment and credit proposal will highlight requirements and recommendations
they may cover all conversations/ time lines between the broker and client.
Preliminary
Assessment
Based upon your enquiries as to the financial situation, requirements and
objectives of your client you are required to conduct a preliminary assessment
to determine whether the proposed credit contract/lease is ‘not unsuitable’ for
the client. This must be done prior to suggesting the client applies for, or
providing assistance applying for a particular credit contract.
Credit Quote and
Credit Proposal
Documents
These forms may be incorporate into the one document.
The Credit Quote outlines the maximum fees and charges payable to the credit
representative and licensee for credit assistance. Must be provided before
credit assistance is provided.
The Credit Proposal document outlines the fees, charges and
commissions relating to the particular credit contract or consumer lease and to
whom/by whom they are payable.
Serviceability When submitting an application you are to include a Serviceability Assessment
sheet/calculator which shows the lender you have ensured the clients can
afford the loan. You will find these assessment tools form part of the lenders’
online broker toolkit.
First Home Owners
Grant application
The FHOG is federal government funding towards the purchase of a client’s first
home. Whilst the Federal Government provides the funding for these
concessions each State and Territory Government administers the schemes.
Information is available by visiting the Office of Revenue in the jurisdiction in
which the client resides. Exemptions and limits for this funding apply. There
may also be first home buyers stamp duty concessions available.
Fully completed lender
loan/lease application
A loan/lease application form of the lender needs to be fully completed. Most
are completed and submitted through to the lender online. If the loan is for
business purposes, the business purpose declaration needs to be completed
and signed by the borrowers.
Notes to Lender Finance brokers must provide as much information as possible when submitting
a loan/lease application, of any nature, to ensure a fair and reasonable decision
can be made by the lender.
Lenders/Broker
document checklist
Lenders have a checklist to ensure you have submitted the application correctly
with all the supporting documentary evidence. Please ensure this is completed.
Anti-Money
Laundering/ Counter
Terrorism Financing
Due to criminal activities and money laundering you have to provide the
necessary identifying documents to support the application.
Some lenders carry out their own verification through their branch network.
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Other supporting documents
Other documents to support the loan or lease application should form
part of the client file may include those that form part of the loan/lease
application to the lender and/or assessment and settlement of the
facility. These documents could include, invoices, proof of income,
registrations, contracts of sale, loan contracts, statements, financial
records, trust deeds.
Maintaining statutory records
Regulators such as ASIC and APRA require financial services
organisations to maintain records of transactions and correspondence
that relate to the provision of financial services.
In many cases, records must be kept for a minimum of seven (7) years.
This requires efficient systems to store an extensive amount of
documentation. Mortgage contracts, which are held by the lender, must
be stored for the entire period of the loan.
Maintaining an up-to-date understanding of
compliance requirements
As previously mentioned, finance brokers are required to remain up to date
with compliance requirements as they change over time. They must ensure
they have systems in place to regularly review compliance information.
Sources might include:
ASIC publishes its compliance requirements free of charge on its
website at www.asic.gov.au. In addition, as the licensing body, ASIC
contacts licensees with news of changes to compliance requirements.
The licensee must then ensure that this information is passed on to all
representatives. The regular receipt and review of ASIC literature is
essential for meeting the ongoing compliance standards.
Financial Press: Changes in compliance requirements for financial
advisers are usually detailed in the various financial media available in
Australia. The most thorough examination of changes is usually
available through the print media. Many print media outlets are
available online, and many of these offer a free newsletter service,
Activity 9 – Disclosure documents
List the responsibilities associated with credit guides, quotes and
lease proposal documents.
Check the model answers section
file:///J:/AAMC%20June%202015/AAMC%20TO%20CORRECT/AppData/Local/Microsoft/Windows/Temporary%20Internet%20Files/Content.Outlook/SEYSSVZ7/www.asic.gov.au
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which informs subscribers of the various headlines available each day.
Subscribing to, and reading these newsletters is often a good way of
ensuring that you are notified when significant changes occur.
Aggregator/Association/Licensee – these parties also have a direct
interest in ensuring credit advisers are keep abreast of current industry
changes to regulation. They also effectively lobby against any changes
they don’t believe are valuable for clients and members.
Statutory records under the NCCP
The NCCP places obligations to maintain certain statutory records on
licensed credit providers. Such financial records must correctly record
and explain the credit activities the licensee engages in. There are also
obligations regarding trust accounts where funds are received and held
on behalf of another person.
Licensees are required to retain financial records for a period of seven
years after the transactions covered by the record have been completed.
National Consumer Credit Protection (NCCP) Act and the
National Credit Code (NCC)
Credit providers are obliged to provide copies of customer records, e.g.
Loan Contracts, Guarantees, Mortgages, Insurance Contracts and
Notices during the life of the contract.
Credit licensees are only obliged to retain financial records for seven (7)
years after the transactions covered by the record have been completed.
A licensee must keep a copy of all quotes, preliminary assessments, and
full suitability assessments for funded loans.
A licensee must also keep a record of all material that forms the basis of
an assessment of whether a credit contract or consumer lease will be
unsuitable for a consumer in a form that will enable the licensee to give
the consumer a written copy of the assessment, if a request is made
under section 120, 132, 143 or 155 of the National Credit Act.
Information received in support of loan applications can also be required
for review by third parties such as APRS, ASIC, mortgages insurers and
internal and external auditors.
Keep records to demonstrate that you are meeting your responsible
lending obligations
Keep records to demonstrate compliance of your representatives
Keep records to demonstrate compliance with your Australian Credit
Licence conditions e.g. complaints, disputes, breach registers, training
register.
Bright Law: Record Retention Aug 2014
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The definition of financial records includes the following types of records:
Invoices, receipts, orders for the payment of money, bills of exchange,
cheques, promissory notes and vouchers
Documents of prime entry, (‘Documents of prime entry’ refer to a
chronological record of business transactions arranged according to
type, for example, Cash or Sales) and
Where the licensee provides credit services, any trust account
statements or reports that the licensee is required to keep
Other records that need to be maintained include Professional
Registrations, Memberships, Licensing and Insurance certificates of
currency.
OHS training, risk assessment, conflicts of interest and incident
registers
Records must be in English (or readily convertible to
English)
Records must include, among other things:
For each credit contract the amount and day of all payments made, and
all amounts (including principal, interest, fees and charges) owed by
the debtor
All income received by the licensee from commissions, interest, and
other sources, and all expenses, commissions, and interest paid by the
licensee
Copies of all relevant agreements and authorities, and
All the assets and liabilities (including contingent liabilities) of the
licensee.
Paper files
Traditional filing cabinets are generally used to keep all “hard copy”
files. These papers, as required by the Privacy Act and ASIC, are to be
kept in a lockable filing unit, or in a lockable filing room which is
preferably fireproofed.
In many cases, these documents are held within these lockable cabinets
for the entire financial year where they are then transferred to an
archive system, again, locked and secured.
Computer files
It is essential that computer files are held securely and backed-up each
day. These back up devices should also be kept secured. It is also
recommended that files that can be accessed from a computer
connected to the internet be transferred to a server that can be
partitioned off from the main system’s accessible files.
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Computer hackers now have the technology to gain access and
download files from most computers that are connected to the internet.
As this is becoming more and more an issue with privacy, businesses
are employing IT professionals to create firewalls and security sites that
can only be accessed by password holders.
General documents to be filed
Further examples of documents that must be retained under the various
legislations that we have covered in this section are listed below. The
filing and storage of these documents is the responsibility of the
licensee.
These documents include:
Tax records
Employment details
Workers Compensation Insurance Policies, Public Liability Policies
Professional Indemnity Insurance Policies, Superannuation Payments
and Policy Documents
Registration with industry bodies
Completed training programs
Business Name Registration
Business reports, and
Minutes of Meetings with Company Directors (if registered as a
business).
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Section 4 Identifying sustainability issues for the
financial services industry
The World Commission on Environment and Development published a
report called “Our Common Future” (The Brundtland Report 2007) which
brought the concept of sustainable development onto the international
agenda. It also provided the most commonly used definition of
sustainable development describing it as:
“Development which meets the needs of the present without compromising
the ability of future generations to meet their own needs.”
The Brundtland report described seven strategic imperatives for
sustainable development:
Reviving growth
Changing the quality of growth
Meeting essential needs for jobs, food, energy, water and sanitation
Ensuring a sustainable level of population
Conserving and enhancing the resource base
Re-orienting technology and managing risk
Merging environment and economics in decision-making.
It also emphasised that the state of our technology and social
organisation, particularly a lack of integrated social planning, limits the
world’s ability to meet human needs now and in the future.
Sustainability is being embraced by a range of financial institutions in
Australia. We will address sustainability in this section.
The Global Financial Crisis (GFC) and
sustainability
Climate change and sustainability continue to dominate corporate and
government agendas around the world. Organisations not only face
regulatory impacts, but also expectations for action from a wide range of
stakeholders, including employees, investors, lenders, customers and
suppliers.
On the one hand, climate change and sustainability can drive new
opportunities, but on the other, these issues can also pose significant
financial and reputational threats.
For many organisations, a clear vision that identifies and addresses the
inter-related financial, economic, strategic and risk management aspects
is key. Striking a balance means embedding climate change and
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sustainability into core business activities, to achieve both short-term
objectives and to create long-term shareholder value.
In 2009 Peter Sands, Group Chief Executive for Standard Chartered
Bank, made the following statements regarding sustainability issues
facing global financial services providers as a result of the GFC:
“If anyone needs convincing of the importance of taking a sustainable
approach to business, then the extraordinary dislocation and disruption
in financial markets in 2008 provided dramatic proof. Banks with
unsustainable business models collapsed or were rescued by
governments. The sudden reversal of unsustainable levels of leverage
across many financial markets caused immense damage to the real
economy. Not surprisingly, public trust and confidence in banks and
political support for the industry declined sharply.
The market environment remains volatile and challenging. The process of
correcting the unsustainable macro imbalances, the over-leverage and
the excess liquidity, is far from over. In 2009, almost every economy in
the world faced slower growth, rising unemployment, and corporate
failures. Although markets in Asia, Africa and the Middle East did better
than those in the West, they were still being significantly affected.”
He also stated:
“Banking inherently involves taking risk. This does not necessarily create
a problem, as long as the risks of each activity are well managed and
appropriate to the economic value of such activities. Yet over the last
few years, many banks have lost sight of the risk-return trade-off, both
for themselves and for society as a whole. Some of what banks have
been doing – the products, the business models – have turned out to be
unsustainable.”
Since sustainability began making its way onto corporate agendas, the
financial services industry has been a leader in incorporating
sustainability reporting into its business practices. Now, with the
convergence of world economic and sustainability crises, the industry’s
urgent tasks include elevating sustainability into the most senior levels
of management and strategic plans.
Lessons to be learnt from the GFC
A number of lessons can learned from the GFC and incorporated into
developing strategies for sustainability.
All financial institutions, which lend money, and in particular banks,
need to ensure their strategies, business models and products are
sustainable. This does not mean that every institution has to be equally
successful, but the system of regulation needs to be able to anticipate
and catch the failures before they become catastrophic.
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Another lesson is that every market is
interconnected.
The notion of
‘decoupling’, that somehow the Asia-Pacific region would be immune to
the travails of the West, has been demolished. This means that
responses to global crises need to be coordinated.
Principles of sustainability
The National Centre for Sustainability (NCS), states that when developing
a model for sustainability it should be based on the following principles:
Organisations and individuals should recognise their ability to act
sustainably in all they do
Play an active role in promoting more
sustainable
practices
Through education, promote a behavioural change which exemplifies
sustainable practices
Do not compromise the possibilities of future generations through
unsustainable activities
Encourage consideration of alternative and more sustainable solutions,
strategies and perspectives in addressing concepts, problems or issues
in business, government and communities.
Guiding steps for achieving sustainability
Working towards sustainability involves the following:
Developing an environment which supports human dignity through
gender and racial equality and promotes intergenerational respect
Developing honesty and integrity in daily life
Encouraging the fair distribution of wealth
Working to strengthen local communities and safeguard the health and
safety of all
Committing to maintaining and enhancing the integrity and biodiversity
of the natural environment
Using natural resources, such as water and land, wisely and aiming to
reduce consumption
Treating our refuse by reusing, repairing and recycling it
Where possible buying “green” products, locally produced with reduced
packaging
Understanding the synergies between advances in technology and
behavioural change to achieve sustainability
Encouraging ethical business practices
Developing business strategies which promote good corporate
governance
Encouraging financial success through openness and transparency.
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Triple Bottom Line (TBL/3BL) Reporting
Sustainability reporting involves companies and organisations
demonstrating their corporate social responsibility through measuring
and publicly reporting on their economic, social and environmental
performance and impacts. It can be delivered through the company’s
annual report, a stand-alone sustainability report, a triple bottom line
report or an environmental or social impact report.
Activity 10 – Standard Chartered Bank and
sustainability
You can read Peter Sand’s statement in full by clicking on the
following link: www.standardchartered.com/sustainability-review-
08/ceo/en/index.html
List six key areas of the bank’s sustainability strategy.
Check the model answers section
http://www.standardchartered.com/sustainability-review-08/ceo/en/index.html
http://www.standardchartered.com/sustainability-review-08/ceo/en/index.html
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The triple bottom line (abbreviated as “TBL” or “3BL“, and also
known as “people, planet, profit”) captures an expanded spectrum of
values and criteria for measuring organisational (and societal) success:
economic, ecological and social. In the private sector, a commitment
to corporate social responsibility implies a commitment to some form of
TBL reporting. This is distinct from the more limited changes required to
deal only with ecological issues.
In practical terms, triple bottom line accounting means expanding the
traditional reporting framework to take into account ecological and social
performance in addition to financial performance. The concept of TBL
demands that a company’s responsibility be to stakeholders rather than
shareholders.
In this case, “stakeholders” refers to anyone who is influenced, either
directly or indirectly, by the actions of the firm. According to the
stakeholder theory, the business entity should be used as a vehicle for
co-ordinating stakeholder interests, instead of maximising shareholder
(owner) profit.
“People, planet and profit” succinctly describes the triple bottom lines
and the goal of sustainability.
People
Also known as human capital, people pertains to fair and beneficial
business practices toward labour and the community and region in which
a corporation conducts its business. A TBL company conceives a
reciprocal social structure in which the well-being of corporate, labour
and other stakeholder interests are interdependent.
A triple bottom line enterprise seeks to benefit many constituencies, not
exploit or endanger any group of them. In concrete terms, a TBL
business would not use child labour and would monitor all contracted
companies for child labour exploitation, would pay fair salaries to its
workers, would maintain a safe work environment and tolerable working
hours, and would not otherwise exploit a community or its labour force.
A TBL business also typically seeks to “give back” by contributing to the
strength and growth of its community with such things as health care
and education. Quantifying this bottom line is relatively new,
problematic and often subjective.
The Global Reporting Initiative (GRI) has developed guidelines to enable
corporations to comparably report on the social impact of a business.
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Planet
Also known as natural capital, planet refers to sustainable environmental
practices. A TBL company endeavours to benefit the natural order as
much as possible or at the least do no harm and curtail environmental
impact. A TBL endeavour reduces its ecological footprint by, among
other things, carefully managing its consumption of energy and non-
renewables, reducing manufacturing waste as well as rendering waste
less toxic before disposing of it in a safe and legal manner.
“Cradle to grave” is uppermost in the thoughts of TBL manufacturing
businesses, which typically conduct a life cycle assessment of products
to determine what the true environmental cost is from the growth and
harvesting of raw materials to manufacture to distribution to eventual
disposal by the end user. A triple bottom line company does not produce
harmful or destructive products such as weapons, toxic chemicals or
batteries containing dangerous heavy metals for example.
Currently, the cost of disposing of non-degradable or toxic products is
borne financially by governments and environmentally by the residents
near the disposal site and elsewhere. In TBL thinking, an enterprise,
which produces and markets a product, which will create a waste
problem, should not be given a free ride by society. It would be more
equitable for the business, which manufactures and sells a problematic
product to bear part of the cost of its ultimate disposal.
Ecologically destructive practices, such as overfishing or other
endangering depletions of resources are avoided by TBL companies.
Often environmental sustainability is the more profitable course for a
business in the long run. Arguments that it costs more to be
environmentally sound are often specious when the course of the
business is analysed over a period of time.
Generally, sustainability-reporting metrics are better quantified and
standardised for environmental issues than for social ones. A number of
respected reporting institutes and registries exist including the Global
Reporting Initiative, CERES, Institute 4 Sustainability and others.
Profit
Profit is the bottom line shared by all commerce, conscientious or not. In
the original concept, within a sustainability framework, the “profit”
aspect needs to be seen as the economic benefit enjoyed by the host
society. It is the lasting economic impact the organisation has on its
economic environment.
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This is often confused to be limited to the internal profit made by a
company or organisation. Therefore, a TBL approach cannot be
interpreted as traditional corporate accounting plus social and
environmental impact.
The relationship between the three “Ps” and how they are integrated
into a corporate sustainability report is depicted in the following
diagram.
Corporate social responsibility and sustainability
reporting
Corporate Social Responsibility (CSR) is the way companies manage
their businesses to produce an overall positive impact on society
through economic, environmental and social actions.
With demand for action on climate change now driving the
mainstreaming of sustainability as part of core business strategy and
operations, traditional service providers are being forced to rethink their
offerings. The big accountancy, legal and strategy houses, management
consultants, marketing agencies, PR and communications firms and
government relations specialists are all working on how climate,
sustainability and the broader corporate social responsibility (CSR)
agenda can fit with them and their clients.
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Triple bottom line core characteristics
What are the observable characteristics of triple bottom line? In its
widest sense, triple bottom line is a philosophy that guides overall
corporate performance. In a narrower sense – and the one that applies
in this study – it refers to the approaches adopted for measuring and
reporting on business performance beyond the financial dimension and
towards an integrated view of business processes and impacts in
environmental, social and economic (including financial) domains. While
strategy and management practices feature to some extent in this
study, the focus concerns why companies might consider publicly
reporting on non-financial matters and how that is being achieved.
The following points represent the essential behaviour and attitudes that
are manifest in those companies that seek to manage and report
according to the idea of the triple bottom line.
Accepting accountability
Triple bottom line is founded on the assumption that companies are
accountable not only to shareholders for generating returns but also to
stakeholders for contributing, within their context and capabilities, to
sustainable development. Endorsing this notion of accountability most
often features in the vision or core beliefs of a company.
Being transparent
Companies also have an obligation, within commercial limits, to be
transparent about their activities and impacts beyond financial performance.
Recognising the legitimacy of stakeholders’ ‘right to know’ and disclosing
multi-dimensional results and impacts is a powerful idea embodied in the
triple bottom line and is most often reflected in the core beliefs of a
company, its dialogue practices with stakeholders and in the actual content
of its public reporting. Transparency is essential for sound governance.
Integrated planning and operations
For a company to contribute to economic prosperity (including returns to
shareholders), environmental quality and social well-being requires all
these dimensions to be reflected in strategic planning, the range of
operational management systems and reward schemes. In other words,
building these economic, environmental and social considerations into
the core processes that drive a company is a precondition for measuring
and reporting according to the triple bottom line.
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Committed to stakeholder engagement
Interacting with internal and external stakeholders is a process that
informs business objectives and is developed from a base of rigorous
research and dialogue. A commitment to considering stakeholders’
perspectives and to developing strategies for engagement is embraced
as a core business strategy that adds value.
Multi-dimensional measurement and reporting
Systematic analysis and verification of economic, environmental and
social performance, together with structured communication on the
results, is most often the main mechanism for making concrete what a
company stands for, how it behaves and how it delivers on its promises.
This publication by The Allen Consulting Group gives a very informative
insight into TBL:
www.environment.gov.au/archive/settlements/industry/finance/publicati
ons/triple-bottom/pubs/parta
CSR and triple bottom line reporting
CSR is all about the obligations of an organisation or company to be
accountable to its key stakeholders across all of its operations, with the
aim of achieving “sustainable” development not only in the financial
dimension, but also in the social and environmental dimensions. The
focus is on “sustainable” economic activity and returns.
CSR and triple bottom-line reporting are variants of the same theme. At
its very core, CSR has nothing to do with “feel-good” or saving the
planet. It is a risk-management and resource optimisation tool and, as
such, provides a balanced management tool to decision making.
Often the internal process of developing a CSR report provides more
value than the report itself, because it forces a company or organisation
to assess as well as develop strategies and actions to counter its risks
across the entire spectrum of its social, environmental and economic
impacts on its stakeholders.
The potential benefits include:
Better risk management and balanced management decision making
makes good business sense
Improved management of intangible assets such as brand and human
capital
Improved corporate governance
Institutional recognition of a “well-managed” company
Impact on staff/recruitment and corporate culture – working for a
“responsible and caring” company.
http://www.environment.gov.au/archive/settlements/industry/finance/publications/triple-bottom/pubs/parta
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Sustainability and the Australian financial
services sector
Many financial services organisations in Australia are taking significant
steps to develop and communicate policies on climate change, the
environment, sustainability and corporate social responsibility. A
number of organisations have adopted and applied CSR principles and
triple bottom line reporting.
Many have implemented sustainability policies aimed at generating
business and social benefits such as a greater emphasis on waste
reduction, fair trade and procurement policies and sustainability
practices that include monitoring the people, energy and environmental
policies of suppliers.
A growing number of financial organisations now issue sustainability
reports that set benchmarks and report on sustainability performance.
Each year, the Australia/New Zealand banking sector alone contributes
around A$90 million to community organisations.
Australian financial services organisations are among the world’s leaders
in conforming to corporate social responsibility and greenhouse
standards promoted by organisations such as the Dow Jones
Sustainability Index, the Carbon Disclosure Project and the Corporate
Responsibility Index.
Implementing sustainability
Sustainability may be implemented in a financial services organisation
by focusing on areas such as:
Protecting the environment by reducing its environmental impact and
helping others to do the same
Sustainable finance by addressing the environmental, social and
governance risks and opportunities involved in doing business with its
customers
Access to financial services by making finance more accessible to
people excluded from formal banking services
Tackling financial crime by detecting and preventing activities such as
fraud and money laundering, corruption and terrorist financing
Responsible selling and marketing by treating customers fairly through
the highest levels of service, transparency and responsible banking
practices
A great place to work by attracting, developing and retaining the best
talent by making its people feel valued, included and engaged
Community investment by using its expertise and resources to help
communities develop and economies grow.
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These priorities should be supported by appropriate business practices
and policies. These should be underpinned by an organisation’s Code of
Conduct, which aims to ensure that it does business in a lawful and
ethical way, in line with its core values.
Responsible selling and marketing
The GFC highlighted the critical role of responsible selling and marketing in
the financial services industry. Retail and corporate investors suffered
losses in certain products that had historically provided an enhanced yield
in return for investors taking increased risk. Questions are now being asked
about whether these products were suitable for the customers who bought
them. Whilst the Federal government has introduced new legislation, such
as the new Credit Act, to protect consumers’ financial institutions need to
strive to achieve best practice in customer service.
Product design should be based on customer segmentation so that
products are targeted at appropriate customer groups, according to their
experience and sophistication as well as the customer’s willingness to
accept different levels of investment risk. Product suitability assessments
and explanation of product features, benefits and risks should be
embedded in the sales process for all investment products.
These identify the customer and client’s financial needs and allow sales
staff to meet those needs with appropriate financial solutions from the
financial institution’s range of products.
The National Consumer Credit Act (NCCP) obligations require disclosure
by credit providers to consumers about the application and assessment
process as well as prohibiting credit providers from making loans that
are unsuitable for borrowers.
Responsible lending requires lenders to show they have taken into
account a customer’s ability to repay. The lender’s assessment of
affordability must be based on their own enquiries rather than using
information provided by the borrower without checking it.
There should also be plausibility checks on income and outgoings;
information from applications and other statistics should be used to
maintain and update this information. This may involve lenders needing
to contact the borrowers’ employers to verify employment status and
plausibility of income (e.g. check overtime, bonuses, working hours).
Lenders will need to give appropriate consideration to customer’s
circumstances and ability to maintain repayments in retirement; they
will need to look at the part of the mortgage that will be outstanding at
retirement; and the number of years until retirement and check the
plausibility of customers’ claims that they would work beyond normal
retirement date.
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Sustainable finance
By far the biggest impact a lending institution may have on society and
the environment is through support for the business activities of its
clients. Its financing decisions, who and what it will finance, enable it to
make a very strong contribution to sustainable development.
The environmental, economic and social costs of climate change are well
known. Their impacts are becoming increasingly evident, especially in
those countries that have limited capacity to mitigate against, and adapt
to, the key risks associated with climate change.
A financial institution can respond to these challenges in two ways:
Supporting clean and renewable technologies that will reduce
greenhouse gas emissions
Embedding a sustainability approach in its financing decisions and risk
management.
Responsible investment
You may have heard a range of terms such as ‘ethical’, ‘green’,
‘sustainable’ or ‘socially responsible’ investment. These are all different
names for what is now known as ‘responsible investment’.
Responsible investing, also known as sustainable, socially conscious, or
ethical investing, describes an investment strategy, which seeks to
maximise both financial return and social good.
This includes the effects of climate change, a global population that is
growing and ageing rapidly, funding for healthcare, the scarcity of food
and water or the social and environmental practices of companies.
These issues represent serious value drivers with serious costs attached;
whether short or long-term, devastating or incremental or the very real
cost of missing an opportunity.
Responsible investment (RI) provides investors a way to base financial
decisions on their convictions, end up with solid returns, and make a
positive contribution to our world.
Investors use two basic strategies to maximise financial return and
attempt to maximise social good. These strategies may satisfy the
ethical principal of non-harming, but with the exception of shareholder
activism, they do not necessarily create positive social impact.
Negative screening excludes certain securities from investment
consideration based on social and/or environmental criteria, for
example, many socially responsible investors screen out tobacco
company investments.
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Positive screening involves making investments in activities and companies
believed to have a positive social impact and suggest a broad revamping of
the industry’s methodology for driving change through investments.
Popular sectors include environmentally friendly technologies such as:
Waste reduction
Emission-reducing products
Bio-technologies
Alternate energy
Natural gas
Health care.
Ethical funds were slower to emerge in Australia than in other parts of
the developed world, but this has changed in recent years as a result of
strong consumer demand. Today some of our biggest institutions,
including BT and AMP, have added ethical funds to their portfolios. The
list is still comparatively small but it is steadily growing.
Activity 11 – CBA’s Sustainability Report 2014
You can read about how an Australian financial institution, CBA, is
addressing sustainability by accessing CBA’s sustainability report
for 2014 using the following link:
www.commbank.com.au/sustainability2014/index.html
The report identifies five sustainability foundations. What are they?
Check the model answers section
https://www.commbank.com.au/sustainability2014/index.html
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Section 5 Participating in and facilitating work
team activities
The health of an organisation and its long-term standing is definitely
influenced by the people who work in the organisation. It is people who
run the show and make decisions, not machines or computers and it is
people who build client relationships. Over the last few decades the
corporate world has accepted and adopted teamwork as an effective
way to manage a business.
The team is the unit that evaluates problems, develops strategies, and
takes decisions on various aspects pertaining to the business. Their
effectiveness or ineffectiveness can have a direct impact on the
performance of a business. Ineffective teams can potentially damage the
reputation of a business. Quite often, poorly performing teams are
responsible for clients or customers taking their business to a rival firm.
Intense competition in several business segments means the teams
have to be faster, better, offer more value, and display a distinct edge.
When an organisation has highly motivated, effective teams managing
various aspects of its business, the benefits to the organisation are
enormous both in the tangible and intangible space.
Sustaining effectiveness in teams
Sustaining team effectiveness can specifically help in the following areas:
It helps an organisation build its credibility and reliability among its
clients
It helps build long-term client relationships and therefore retain client
and sales revenues over an extended period of time
It helps an organisation maintain continuity of work teams, especially
for large clients or projects. This means less need to train new
members and then incorporate them into an already established team
It helps an organisation maintain quality in work output and
consistently meet client expectation or even surpass expectations
It helps an organisation attempt new business development and new
initiatives with total confidence in the ability of its teams to deliver
great work and great results
It positively impacts business growth and this has a direct bearing on
the bottom-line of the organisation.
An organisation has to strive to get the best out of its teams and to do this
they have to make the right investments in training and development. This
helps their business run a lot more efficiently, and more importantly it
builds favourable credentials for the business in corporate circles. Every
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organisation has the capability to make their teams effective for the long
haul; they just need the right inclination to take that first step forward.
Facilitating effectiveness in teams
You often hear of examples of excellent teamwork on a particular
project and how well a team performed on a certain task, but as we all
know, one-off performances don’t count for much in business. As they
say, you are only as good as your last performance.
If the team does a bad job on the next project and falls off its pedestal,
then the team will be put under a magnifying glass to gauge what’s
wrong and who is responsible. It is therefore important to aim for
measures that can help a team sustain its performance.
A simple framework that any organisation can easily apply to stimulate
effective teamwork is TIER and comes into the picture after you put
together a team-mix that you believe has the right composition of
expertise, experience, and personality traits to suit the project or
business task set out.
TIER stands for:
T: Develop the Team. Design team building programs and
experiential workshops that provide guidance on issues such as team
behaviour, cohesion and teamwork.
I: Develop the Individual. Facilitate ongoing job training, upgrade
skills regularly, and offer scope for personal growth.
E: Enable the Team Process. Steer a team in the right direction by
clarifying roles, specifying business objectives, encouraging discussion
and good productive conflict to optimise the team output.
R: Recognise and Reward. Recognise and reward both the individual
effort and team effort. Good teamwork deserves a pat on the back and
so does outstanding individual contribution.
Once a team has been formed, you basically keep adding layer upon
layer of organisation input to facilitate a consistently high performance:
Layer 1- You invest in developing the team on a continuous basis
Layer 2 – You pay attention to individual progress
Layer 3 – You steer the team in the right direction by setting the
framework for the team process
Layer 4 – You monitor progress and develop methods to recognise and
reward both the team and the individual in order to motivate, inspire
and enthuse them to greater performance heights.
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Developing the team
There are various stages in team development. It all starts with
breaking the ice and getting the communication going. Then various
team effectiveness issues have to be addressed through ongoing team
building activities. There are issues such as building trust, goal setting,
decision making, accepting and managing change, creativity, out-of-the-
box thinking, cohesion, and so on.
Develop the individual
The investment that an organisation makes in an individual in the area
of training and development could range from teaching proprietary
techniques and upgrading job related expertise, to skills development or
soft skills training.
The aim should be to effectively develop the individual so that the team
performance is sustained in the long run.
Enable the team process
Poor role clarity and understanding of organisation objectives are two
key factors often cited as reasons why a team becomes ineffective. The
starting point for enabling good teamwork on a consistent basis is to
ensure that there is absolutely no ambiguity whatsoever. Whether that
is in the team’s understanding of their roles and responsibilities, or their
understanding of the overall organisational goals that the teamwork has
to support.
The other concern area that is usually assumed to stand in the way of
effective teamwork is conflict and improper conflict resolution. There is
good and bad conflict. Divergent viewpoints and disagreements during
the course of discussing a strategic issue can actually be classed as
productive conflict.
This can be healthy for the team since disagreements often provide a
means to explore various ‘problem–solution’ alternatives. When there
are differing perspectives within a team it helps the team examine the
issue thoroughly before arriving at recommendations. An important
aspect of enabling good teamwork is to encourage frank and open
discussions so that the output from the team is truly based on the
collective thinking and experience of all the team members.
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Recognise and reward
It is important for the top management of an organisation to recognise
and reward individual contribution, in order to encourage each individual
to do his or her best in contributing to the team effort. Rewards are
motivators and provide a psychological stimulus that can drive people to
strive harder and aim for excellence. When a team does well at a task, a
word of appreciation can work wonders for team spirit and enthusiasm.
Team recognition boosts team morale and heightens motivation levels
on future projects. It creates a sense of camaraderie among the team
members and the collective thrill that the team feels reflects positively
in their work. Therefore, both types of recognition are important and
give you the same result, i.e. they enhance motivation levels and
provide a stimulus for a better team performance. There are many ways
that management can show appreciation for individual and team efforts
including:
Express thanks with a public thank you – sometimes a simple
“thank you” can do wonders, especially in a public forum – like an all-
company meeting or an email blast.
A hand-written card – in an age of emails and texts, a simple
handwritten note really stands out.
Small gifts – thoughtful, yet inexpensive gifts like gift cards to a local
coffee shop, movie tickets, chocolates or flowers.
A wacky and fun award – at one company they have a monthly
award whereby employees get to nominate peers who deserve to be
recognised for their contribution. The winner is announced at an all-
staff meeting and the employee gets to have a large green shoe
on their desk for the entire month.
Covering commuting costs – paying for parking or public
transportation, offer a reward of one month of free parking, a bus pass
or a fuel card.
Feature top employees on company blog or newsletter –
featuring top employees in a company blog or newsletter provides
recognition and broadcasts what the company value in top employees.
Schedule an all-company activity – an impromptu activity that
gives employees a few hours off from work i.e.; physical team
activities, wineries day, day at the races
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Sustaining effective teams
Though TIER is a process that requires layer upon layer of organisation
input, it is actually a continual process, which is why it works so well in
sustaining effectiveness in teams. It is this continued effort that fosters
consistently high performance in teams.
Communicating with customers
For an organisation to grow its business, it is necessary for their
customers know what it does. What does the business really do? What
are the products or services on offer? How does the business interact
with new and existing clients?
The initial information provided is critical to building a relationship with the
client and must be clear, concise and honest. Information can be in a
variety of forms including paper, audio, video or website. However, it must
clearly explain what is on offer. Unclear information may result in lost sales.
Therefore it is important that any promotional material must:
use plain language and simple diagrams.
not use technical language, abbreviations or jargon.
contain information that is accurate and concise, clearly displayed and
able to be mailed.
always contain the most up-to-date information
meet all legislative requirements.
Financial Services institutions are under pressure to attract new clients
and retain current ones and to do more with less—keep service costs
down even while increasing acquisitions and pushing for greater share of
existing clients’ business.
Activity 12 – Maslow’s hierarchy of needs
One of the most well-known theories associated with team
building is Maslow’s Hierarchy of Needs, which was first published
in 1943. Research Maslow’s Hierarchy of Needs and how it may
apply to motivating a sales team.
1. What are the five levels of ‘needs’ identified?
2. What significance does this have for managers and their sales
teams?
Check the model answers section
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In order to succeed in both, customer service must be made
personalised and more relevant to client needs. At the same time,
service processes must be more efficient for the business.
Best practice
Of course, as much as Financial Services institutions try to meet the
requirements of their clients, there will always be room for improvement.
Maintaining service standards and satisfying every client need is not
always possible. Many Financial Services institutions have attempted to
incorporate best practice systems into their organisations. Best practice is
the way an organisation runs, using methods or techniques that
consistently show results superior to those achieved by other means.
These methods or techniques are regarded as a benchmark within the
industry that other organisations try to emulate.
However, despite all such efforts clients will expect more and getting client
feedback about products and services on offer is vital. This is usually done
via customer feedback forms, online surveys, or talking directly to clients.
The feedback received can be positive or negative and it is important for
management to take on board, in order to ensure that there is ongoing
improvement of customer service standards.
Most clients will not always have the time or the know-how to respond
to feedback requests. So when things go wrong, they will usually
complain-either verbally or in writing.
Complaints
Complaints are an important way for the management of a business to
be accountable to their clients. They provide a valuable prompt to
review performance and the conduct of people that work within it or as
their agents and representatives.
An effective complaint handling system provides the following key
benefits to business:
It resolves issues raised by a dis-satisfied person in a timely and cost-
effective way.
It provides information, which can lead to improvements in service
delivery.
Where complaints are handled properly, a good system can improve
the reputation of a business and strengthen public confidence in its
processes.
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Typical steps in handling and resolving a complaint
are:
Assess the complaint
Ensure that those handling the complaint have the proper powers and
authority
Select and plan the appropriate investigative approach
Obtain evidence
Consider resolution as quickly as possible
Make recommendations and document them
Inform the client
The steps mentioned above are just some of the measures that an
organisation might undertake. It is by no means prescriptive and will
vary from organisation to organisation depending on their internal
policies, procedures and workflow processes.
Due to the onerous legislative and compliance requirements in the financial
services industry, dealing with client concerns and complaints is extremely
crucial. A situation which, if allowed to escalate, could not only lead to bad
publicity (thereby harming the image of the organisation) but in extreme
situations, may lead to intervention by the regulators. This could then lead
to more serious consequences as they may wish to investigate matter
further. It is therefore imperative that a quick resolution is always sought,
when dealing with complaints.
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Section 6 Planning
Taking into consideration time, resources and
other constraints
In order to work effectively in your organisation, you will need to
understand your goals and how you will go about achieving them. Knowing
how to plan is an important skill that will help you meet your goals.
In this section we will consider:
Prioritising
Scheduling, planning with others
Resource planning
Planning in the organisation
Planning for change.
Goal setting
Knowing what tasks to be achieved will start by first looking at what goals
you have set for yourself.
You may have heard the saying “Dream, Believe, Achieve”. However, it
is only by setting goals and establishing action plans that you can start
to make progress.
We set goals for ourselves every day, some simple, others complex,
some long term, others short term. For goals to be achievable, they
must be clear and concise. Goals should meet the SMART criteria:
Specific
Measurable
Achievable
Relevant
Time framed
SMART Goals will provide focus and direction and are more likely to be
achieved. By the use of action plans, you can monitor and control
activities to achieve goals.
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Developing a plan
The next thing is to look how you will achieve these goals through
planning. By developing an action plan you focus on what you want to
achieve, when it will be completed, how it will be done, what you will do
first and how it will be measured.
The following example provides a format for helping you to organise
your action plan.
Goal Action Who Date
Write ‘X’ number of insurance
quotes per month
1 July, 20XX
Review all brochures and product
information sheets (such as the PDS) to
develop better understanding of the
features and benefits
Me This week
Listen carefully to all customers to identify
opportunities to suggest insurance products
Me Ongoing
Attend training program on insurance Me Next week
Keep track of all insurance quotes Me Ongoing
Try to increase the number of quotes each
week by at least one
Me Check
beginning of
each week
Reach target within 30 days Me Week 4
Attend branch meeting to review progress Me End of Week 4
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Turning your goals into plans
As a starting point for setting personal work goals, consult your own
position description.
Choose one of your personal goals and one organisational goal. Use the
table below to help you set out an action plan for each.
You will need to:
Break your goal into achievable sub-goals that are both realistic and
motivating
For each sub-goal set what needs to be done, who will do it and, when
it needs to be completed
Build an overall timetable, so that you can monitor the achievement of
each sub-goal and be on track to achieve the long-term goal
Keep a written record of your progress as a reminder and a stimulus to
keep moving forward.
For example, an organisation’s goal may be to make a profit of $X by
year-end or to hire two new employees by month Y. Your personal goal
may be to write X number of loans per month.
Use the format below to write down your ideas.
Personal Goal Action Who Date
Organisational Goal Action Who Date
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Planning resources
Resources that you will use in your business can be divided into
three main areas. They are:
Human Resources – these include any labour that is used in the
organisation, from management to employees and sub-contractors
Physical Resources – these include raw materials, information
technology and equipment
Capital Resources – these include the funds to support workplace
activities, plant and major items of equipment.
When planning any activity you need to identify the resources you will
use. You could use the following questions as a guideline in order to
plan your resources effectively:
What is to be done? (your objective/s)
When is it to be done? (your timeline)
Where will it be done?
How will it be done? (tasks involved, physical materials needed,
available funds)
Are there any special requirements? (taking into account safety
requirements, environmental factors, quality, and time constraints)
Who will do what? (allocating your human resources)
Time management
One other specific area in resource management is time management.
Time is a unique resource and it needs to be used both efficiently and
effectively.
The following observations are of particular relevance to professionals in
the financial services industry:
Each of us has the same amount of time as every other person. None of
us has any more or less than anyone else.
Time cannot be stored for future use.
Time is totally inflexible – it cannot be expanded or contracted to suit
your personal wishes.
It cannot be stopped or reversed. Destroying your alarm clock at 6:00
am will not stop the flow of time or put off the time when we should
start work.
Time cannot be replaced – an hour or a day wasted is gone forever.
Managing this valuable resource will be your biggest hurdle, and the
most rewarding. Better use of your time will allow you cost savings,
greater job satisfaction, reduced stress and improved productivity.
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Effective management of time and resources
A business must utilise its time and resources effectively. Resources will
include company assets such as equipment, money, and its people.
Company resources will also include factors required to put these assets
to use such as water, electricity, gas, stationery etc.
Resources that are inefficiently utilised could lead to a sloppy work
culture, wastage of company assets and loss of customers. This will
eventually lead to financial loss and if the situation is allowed to
continue it will threaten the very survival of the business.
There are several ways to ensure that time and resources are well
managed. This means that people must:
Allocated goals. The goals must be SMART (specific, measurable,
achievable, relevant, time framed).
Always plan and prioritise tasks.
Be disciplined with the management of time. Diaries and calendars are
valuable tools to remind them of key dates and milestones.
Always anticipate and provide for unexpected events, challenges and
problems.
Use technology to automate routine, mundane tasks that would
otherwise take a lot of time.
Delegate tasks if they are in positions of responsibility and authority.
This frees up their time to attend to other more strategic issues.
Use company assets responsibly. This could include equipment, money
as well as other employees. Waste must be avoided and a work culture
must be created whereby valuable resources such as water, electricity,
gas, lights, stationery etc. are utilised only as when required.
Engage in sustainable work practices.
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Planning in business
Strategic planning involves developing a plan or model of a business
future, that is, where it would like to be. It also establishes overall
objectives and seeks to provide direction for the business.
How we intend to achieve goals is detailed in our operational plans, the
step-by-step process required to get there.
We have already discussed how you as an individual financial service
professional are continually setting, analysing and evaluating goals and
determining the most efficient and effective way to achieve these goals.
Planning is an essential element for the successful achievement of goals.
It is an integrated process containing strategic planning elements,
operational planning elements and results planning elements.
For success to occur, these elements must be vertically and horizontally
integrated throughout the organisation.
Take a sporting team for instance. It may have several brilliant
individuals. However, the team’s greatest success will be achieved
through the development of a plan and a coordinated effort by all team
members, coaches, trainers and management alike.
Strategic planning and operational planning
Strategic planning is the longer term and higher level of planning,
whereas operational planning is shorter term and occurs at lower levels
of a business.
Strategic planning is long term, looks at the whole business, is less
specific and is the responsibility of the owner or senior managers.
Operational planning is short term, very specific, applies to small units
or sections and is developed by the people in those units.
It is very important to understand that operational plans contribute
to the achievement of strategic plans. That is, when businesses
develop strategic plans they do so to create long-term goals and
objectives.
The operational plan is created from the strategic plan as a type of
action plan. The table below shows how they are related and
interconnected.
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STRATEGIC OPERATIONAL
developed by owner/senior
management
developed by unit managers
applies to the entire business applies to each individual section of
the business
responsibility of the business
owner/senior management
conducted by formal work groups
focuses on the desired future of the
organisation
focuses on achieving the short term
goals of the organisation
long term 3-5 years short term under 1 year
covers a broader area and is less
specific
scope confined to the unit and is very
specific
includes formulation of objectives offers ways of achieving objectives
As discussed earlier, a business may work on a number of levels and
within each level there are separate units. In considering your
performance, targets and business plan we must ask, “How do our plans
fit in with those of the rest of the business?”
Are we contributing to the business overall performance and are we
helping to achieve its mission and strategic objectives. Let us now move
on to look at change, and how we need to handle change as effectively
and efficiently as we can.
Adapting to change
We are bombarded by changes every day. There are many areas of
change – social, environmental, physical, political, economic and global.
As a professional in the financial services industry, you will be dealing
with changes in your own business, that come about because of changes
in legislation, economics, technology or other matters beyond your
control.
Workplace changes that may occur in your business can be broken down
into two areas:
Internal
External.
Internal changes are usually the result of your management decisions
on issues such as future strategies, the implementation of new
technology and the introduction of new products.
Changes in the external environment can stem from currency
movements, new competition, customer attitudes and legislation.
You rarely have the ability to change the external environment, but you
will need to deal with the consequences of those changes.
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Barriers to change
In order to run an effective and successful business, you need to adapt
to the changes, specifically changes in work organisation and
technology.
Often people put up barriers to change because:
They are happy with the present situation
They fear the unknown
The risks involved in the change are unacceptable to them
The changes may disadvantage them
They do not trust management and their decision-making ability.
Role of teams in the workplace
A typical place of work will consist of a number of individuals. It is
important that the individuals work together as a team, so that common
aims and objectives are achieved.
Team and teamwork must be encouraged in a workplace as it
strengthens the bond among the employees. It allows for the sharing of
workload that would otherwise be too much for a single
individual.
Benefits of team work
Research has consistently shown that people feel motivated and valued
when working as part of a team and this leads to better performance
from individuals. Teamwork in the workplace allows people to become
more familiar with each other and learn how to work together.
Activity 13 – Strategic and operational planning
1. Explain Strategic Planning.
2. Explain Operational Planning.
3. What is the difference between Strategic Planning and
Operational Planning?
4. How are the two linked?
Check the model answers section
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There are several ways in which teamwork is important and vital to the
success of a business:
A) Helps in delegation of tasks
A team that works well together understands the strengths and
weaknesses of each team member. One of the benefits of strong
teamwork in the workplace is that team leaders and members become
proficient at dividing up tasks so they are done by the most appropriate
people. Without strong teamwork, it can be difficult for managers to
determine which staff members can best accomplish job tasks.
B) Promotes efficiency
Work groups and teams develop systems that allow them to complete
tasks efficiently. A well-trained and efficient team is able to work at a
good pace. Tasks therefore, get completed quickly and accurately. This
allows the business to accept more work and generate more revenue
without having to employ more people.
C) Generation of ideas
Teams in the workplace often meet to discuss how to solve issues. When
a team works well together, it allows members to feel more comfortable
in offering suggestions. Team members become accustomed to
participating in brainstorming activities and a variety of suggestions may
be raised as a result.
D) Support to members
There are challenges each day in any workplace, and a strong team
environment can act as a support mechanism for staff members.
Members can help each other improve their performance and work
together toward improving their professional development. Team
members also come to rely on each other and trust each other. These
bonds can be important when the team faces a particularly difficult
challenge, or if the group is forced to deal with the loss of a team
member, to maintain productivity.
E) Building effective team work
The key to effective participation in teamwork is communication. Activities
that will promote team work and participation from members include:
Team and individual goal setting
Getting involvement from members in decision making
Building trusting relationships
Encouraging people to accept and manage change
Encouraging creativity, “out of the box” thinking
Recognising and rewarding participation.
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Importance of role models and effective leadership
The work environment can be a chaotic one if there is no leader to steer
it in the desired direction.
Depending on the size of the firm, there may be several leaders each in
charge of their own designated functional areas. People in leadership
roles must exhibit the required traits necessary to operate effectively
and to move the organisation in line with its desired objectives. Some of
the traits they must possess include:
Organisational skills
Interpersonal skills
Time management skills
Communication skills
In addition, leaders are be expected to positively influence work
decisions, as well as the people that they lead. A good team leader
should be a good role model, in order for others to follow their lead.
A good role model is someone who:
People will look up to.
Will not shirk from a challenge or responsibility.
Is always willing and happy to help others.
Is able to “walk the walk and talk the talk”.
Whose work is exemplary!
Will attempt to solve issues rather than point the blame at others.
The above are just some of the characteristics an individual should
possess in order to be a successful role model.
Where do individuals fit in?
In the work-planning phase, it is important that individuals are made
aware of tasks that require individual effort as distinct from those tasks
that are to be achieved as a group.
Group tasks require a good team leader who is nominated by the group
or allocated by a manager.
Managers should ensure that people are allowed to exercise some
degree of autonomy in their work, in order to develop and nurture the
skills and capabilities of these people.
At the same time, it is also important that people do not always serve
their own self-interests (through too much autonomy). Exposure to the
dynamics of a group is just as important in the development of the
individual.
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Technology and collaboration
Technology makes it easier for people to communicate and collaborate.
There are several tools that people in the work place could use in a
positive way, including:
Texting
Skype
GoToMeeting
Zoom
Social media platforms can help people in the workplace effectively
communicate and collaborate with one another:
Closed Facebook/Messenger
There is also a move towards using time management and project
management tools to monitor the activities and output within a
business. This allows the business to measure and track tasks and
projects as well as set budgets and better understand cashflow.
There are many systems available that will integrate, to allow the
business to use a range of tools covering different functions. For
example; Trello is a project management system that will integrate with
Clockify, a time management system.
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Section 7 Developing and maintaining personal
competency
Maintaining current skills and knowledge is critical in keeping abreast of
industry changes current polices and products and ensuring professional
practice.
Completing ongoing professional development (CPD) is a requirement of
ASIC. ASIC RG206 outlines the minimum standards for professional
development for responsible managers and representatives who provide
home loan credit assistance. However, they do not set specific training
requirements for all other representatives, such as employees. For these
individuals the credit licensee should determine what is appropriate and
relevant.
The table below outlines extracted from RG206 outlines the standards
for both initial and ongoing training which is measured in hours:
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In addition to ASIC requirements, industry associations and licensees
(namely aggregators or business owners) have also set minimum CPD
hour requirements. The associations ensure CPD information is readily
available to members via their websites. Each association may have
differing requirements. In addition to the hours prescribed to meet
membership renewal, the associations may also outline which activities
may be acceptable for professional development with a ceiling placed on
some of these activities. Evidence of these activities is required to be
provided with annual membership renewal.
CPD hours and activities must be stored for a minimum of 7 years and
should include not only a table of activities (similar to that pictured
below – extracted from the AAMC Training CPD tracker system) but any
registers, certificates, receipts or evidence pertaining to these activities
should also be stored in case of audit or if/when required by the licensee
(these forms of evidence are generally not required at the time of
industry association membership renewal).
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Whilst meeting the industry standards for compliance is important
across a range of activities, it is also important to ensure that
development of skills pertain to areas requiring improvement. Seeking
feedback from customers and peers on an ongoing basis is important to
understand professional and personal improvement requirements. Once
these requirements have been determined, it is then important to set
goals to achieve the development of these skills.
Professional goals
It is important pinpoint areas in which you personally need
development. To be able to do this effectively, it will be necessary to:
Determine your level of existing knowledge
Determine what knowledge you would like to gain
Determine how you may implement the knowledge
Some tips for you to consider are:
Establish a realistic target
Determine what needs to be done
Sequence activities in the order they are to be carried out
Implement your plan
Monitor your progress against your plan.
Setting goals
We will now consider how you may investigate options to develop the
missing skills.
My goal is to:
(what you want to achieve/improve)
By:
(date goal to be achieved)
Research and articulate what
skills/learning steps are required
to achieve your goal:
Reviewing your goals
You may want to improve your communication skills by completing a
public speaking course, or improve your knowledge of industry
applicable legislation, or bring your sales skills up to a special level by
attending a specific course.
Some examples of professional development goals may include:
Increase the number of settlements by 10% within three months.
Improve understanding of social media marketing
Acquire a new referral source.
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Investigating personal development options
There are a variety of sources for professional growth – courses,
conferences, networking, discussion groups, professional associations,
workshops and reading of industry related media…
Some tips for top personal performance:
Set milestones. Setting milestones can help you achieve both personal
and professional goals. …
Organize, plan and prioritize. …
Stay focused (and avoid distractions) …
Manage interruptions. …
Do one thing at a time (don’t multitask!)
Don’t leave things unfinished. …
Read something new every day. …
Communicate effectively.
As previously mentioned, many of these activities are prescribed by your
licensee, business and/or association. So it is important to consider this
structure when deciding on activities for CPD.
Many brokers complete more than the mandatory set hour requirements.
This is due to either a need for improvement or a desire to learn.
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A successful professional and business experiences growth through
knowledge which allows them to better understand the marketplace,
provide better service and ultimately grow the business. It is therefore,
important to choose your professional development activities wisely to
ensure you are not wasting valuable time and money. An investment in
knowledge pays the best interest. When it comes to investing, nothing will pay
off more than educating yourself. Do the necessary research, study and analysis
before making any investment decisions. Benjamin Franklin
https://www.bing.com/images/search?view=detailV2&ccid=qfXF95mW&id=1F33E50E36913516DCD5FE8787B37A6EA597A6E8&thid=OIP.qfXF95mWCgx0DyWGnYDLvQHaE8&mediaurl=http://waf-quotes.s3.amazonaws.com/school/9219-school &exph=300&expw=450&q=an+investment+in+knowledge+pays+the+best+interest&simid=608052944771022983&selectedIndex=2
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Section 8 Industry Codes of Practice
Financial services Industry codes of practice (or conduct) are developed by
industry associations. Codes of conduct may also be set by individual
businesses. . The words industry code of conduct, code of practice or code
of ethics, may be used intermittently and in essence are one and the same.
Each code sets out the expected standards that members or employees are
required to adhere to, to maintain best practice.
Industry codes may vary in content, covering general statements of
principle about how industry operates, to listing specific industry
practices that are guaranteed by the code. They may provide a method
of dispute resolution or support any sanctions for non-compliance with
the code.
Voluntary codes of conduct typically make provision for minimum
performance standards whilst leaving it to the member’s discretion to
determine how
standard
will be achieved. It is therefore possible for a
number of banks to comply with their code of conduct, but to do so in
different ways. Industry specific codes allow variations and competition
within an industry, in a way that prescriptive legislation could not. That is
why codes of conduct are often called codes of practice.
The legal effect of a voluntary code depends on whether it is expressed
merely as a set of principles or whether it is intended to be contractually
binding.
For example, the Code of Banking Practice (CBP) is contractually binding
between a bank and its customers once it is adopted by the bank. If a
bank announces it has adopted the CBP but does not follow it, it could
be liable for misleading conduct under the ASIC Act and be guilty of
unfair conduct under NCCP.
Industry and professional codes of
conduct
From an organisational perspective a code of conduct:
Provides an ethical framework for organisational decisions and outlines
minimum standards of behaviour
Provides guidance to staff on how to handle situations that arise
frequently
Defines acceptable and unacceptable behaviour
Encourages a positive organisational culture that will result in a healthy
work environment for everyone.
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Professionals who are members of their respective industry body will
usually have access to that body’s code of conduct (practice). There are
a number of other industry related codes of conduct (practice) that
financial services professionals should be aware of, and if appropriate,
adhere to.
Differentiating between professional and business codes of
conduct
There are structural differences between professions and businesses that
distinguish a professional from a business code of conduct or practice. A
professional code operates throughout a whole profession and sets the
standard throughout the profession. Furthermore, it operates in an area of
expertise that is known better by the profession itself, than by those
outside the profession. This point is significant in that it furnishes a
justification for that enterprise to police itself (at least partially).
A business code, however, may operate at the level of individual
businesses or organisations and may vastly differ. Additionally,
businesses with vast and different codes of conduct might even be in
competition with each other.
Professional and business codes set morals covering the activities of
professions and businesses. However, codes are not the whole moral
story and the success of the industry or business depends largely in
those within it, doing what’s right. . Both professional and business
codes of conduct or ethics play a significant role in modelling and
encouraging compliance within legislative requirements.
The major codes which impact on the financial services industry are
identified in the following table.
Name of Code Industry sector
Code of Banking Practice Banking
Mutual Banking Code of Practice Banking (NBFI)
Electronic Funds Transfer Code of Conduct Banking
General Insurance Code of Practice General insurance
Insurance Brokers Code of Practice Insurance
Financial Planners Code of Ethics and Rules of
Professional Conduct
Financial planning
Mortgage and Finance Association of Australia (MFAA)
Code of Practice
Finance
Finance Brokers Association of Australia (FBAA) Code of
Practice
Finance
Privacy Credit Reporting Code of Conduct Finance
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The Code of Banking Practice
The Code of Banking Practice is a voluntary code of conduct, which sets
standards of ‘good banking practice’ for its members. Banks must follow
these practices when dealing with current or future customers.
The Code of Banking Practice is not applicable to accounts for business
purposes. It only applies to accounts operated for personal household
and domestic use.
It affects all products and services (including loans) offered by any bank
who adopts the Code, including all employees who make available or
support these products and services. If a bank announces it has adopted
the CBP but does not follow it, it could be liable for misleading conduct
under the ASIC Act and be guilty of unfair conduct under NCCP.
The provisions of the Code are legally enforceable by both the bank and
their customers. Once the Code is adopted by a lender it becomes part
of the customer’s contract with the lender.
The objectives of the code are:
Disclosure of information
Principles of conduct
Dispute resolution.
Knowledge of the Code of Banking Practice is an essential element of any
employee or representative (such as third party originators of loans) of an
organisation who has adopted the Code of Banking Practice.
Mutual Banking Code of Practice
The Mutual Banking Code of Practice is a code of practice for Australia’s
credit unions and mutual building societies. As of 1 July 2009, it
replaced the Credit Union Code of Practice.
The Code contains general principles applicable to its members and
customers, such as fair and ethical dealings, clarity in product
disclosure, responsible lending and fairness in complaints handling.
These principles are further elaborated in greater details in the
commitments part of the
Code.
The Code articulates commitments to:
Information about products, interest rates, fees and charges;
Fair terms and conditions
Responsible lending
Credit limit increase offers
Reverse mortgages
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Account statements and balances
Stopping direct debit and recurring payment arrangements
Charge-backs on credit cards
Debt collection and legal actions
Complaints handling process.
The Code was developed by Abacus-Australian Mutuals (Abacus), the
industry association for credit unions and building societies in Australia.
Electronic Funds Transfer
Code
of Conduct
This code articulates the rules and procedures to govern the relationship
between users and account institutions in electronic funds transfers
involving electronic access to accounts.
It is a voluntary code, which provides protection for consumers who use
electronic means for making payments using:
ATMs
EFTPOS
Credit cards
Online payments
Internet banking
BPAY.
The code provides key consumer protections in cases of fraud and
unauthorised transactions.
General Insurance Code of Practice
The General Insurance Code of Practice covers all general insurance
products except:
Workers compensation
Marine insurance
Medical indemnity insurance
Compulsory third party insurance (even if driver protection cover is
linked to it).
It does not cover reinsurance. The Code also does not apply to life and
health insurance products issued by life insurers or registered health
insurers.
The Code is designed to raise the insurer’s service standards for consumers
when they are selling insurance, dealing with insurance claims, responding
to disasters and catastrophes, and complaint handling.
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The General Insurance Code of Practice was first developed and
launched by the Insurance Council of Australia in 1994. In 2005 a
revised Code was developed and it took effect in July 2006. The Code is
monitored and enforced by the Financial Ombudsman Service.
Insurance Brokers Code of Practice
The Insurance Brokers Code of Practice applies mainly to general
insurance and life risk insurance practitioners. It also applies, to a lesser
extent, to associated services such as risk management, arrangement of
premium funding and valuation.
The Code also sets out standards of good practice for brokers when
dealing with customers, including the requirements to:
Inform customers of conflict of interest and remuneration arrangements
Establish an internal dispute resolution process.
Adoption of the Code is voluntary. All NIBA members are automatically
bound by the Code, although adoption of the Code is also open and
recommended to all brokers. Most brokers offering retail services in
Australia have subscribed to the Insurance Brokers Code.
Financial Planners Code of Ethics and Rules of
Professional Conduct
The Financial Planning Association (FPA) Code of Professional Practice
includes general standards of conduct to be observed by financial
planners. It comprises of three components:
A Code of Ethics
Practice Standards
Rules of Professional Conduct.
It is to be read in conjunction with Guidance issued by FPA about the
Code.
The Code includes rules on:
Disclosure statements to prospective clients;
Financial plan preparation
Explanation of financial plan
Client service
Complaints
Education, competency, and supervision.
Planners who are members of the FPA are required to subscribe to the
Code.
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Mortgage and Finance Association of Australia (MFAA)
Code of Conduct
Formed in 1982, the MFAA is one the residential mortgage industry’s
key representatives. They work closely with the financial services sector,
the Federal and all State governments to set the direction and standard
for the mortgage industry. The MFAA assists both industry players and
consumers alike, by dealing with industry issues on behalf of its
members. It also provides an ombudsman scheme to facilitate resolution
of disputes and address borrower concerns.
To demonstrate the higher standards for members the MFAA has
developed a long-standing Code of Practice, set of disciplinary Rules and
other governance guidelines to assure customer confidence when
dealing with an MFAA member.
Finance Brokers Association of Australia (FBAA) Code
of Conduct
The FBAA is another major peak industry body for finance brokers. The
FBAA administers a code of conduct requiring its members act in the best
interests of clients by;
providing full and accurate information;
ensuring the validity and accuracy of all documentation;
and providing advice and guidance to clients
FBAA members are required to comply with the FBAA’s Code of Practice
and Code of Ethics.
Commercial Asset Finance Brokers Association of
Australia (CAFBA)
CAFBA is the country’s peak professional body representing Commercial
and Asset Finance Brokers. CAFBA require that members operate to a
set of professional standards covering:
1. Professionalism
2. Duties to Clients
3. Business Management
4. Conflicts of Interest
5. Member Responsibilities
These five core standards, establish the minimum conduct standards
CAFBA expects of its membership. CAFBA members are required to
demonstrate their commitment to, and promotion of, these professional
standard
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Privacy Credit Reporting Code of Conduct
Together, Part IIIA of the Privacy Act and the Credit Reporting Code of
Conduct seek to apply information privacy principles to the specialised
area of consumer credit reporting. The information privacy principles
aim to protect personal information by emphasising the need for
information collectors to be open, fair and accountable in their use of
information, to ensure that the individual is given a measure of control
over the manner in which personal information about him or her is used
and disseminated.
The principles cover a number of areas including the following:
Restricting collection of personal information to lawful purposes and fair
means
Informing people why information is collected
Ensuring personal information collected is of good quality and not too
intrusive
Ensuring that personal information collected is accurate, up to date,
complete and not misleading
Ensuring proper security of personal information
Allowing people access to records of personal information held about
them
Allowing people to obtain amendments to information about them
Limiting the use of personal information to the purposes for which it
was collected
Restricting the disclosure of information to third parties.
The Code of Conduct supplements Part IIIA on matters of detail not
addressed by the Act. Among other things, it requires credit providers
and credit reporting agencies to:
Deal promptly with individual requests for access and amendment of
personal credit information
Ensure that only permitted and accurate information is included in an
individual’s credit information file
Keep adequate records in regard to any disclosure of personal credit
information
Adopt specific procedures in settling credit reporting disputes
Provide staff training on the requirements of the Privacy Act.
Part IIIA and the Code of Conduct generally only apply to consumer
credit. As such, commercial credit is generally unaffected other than in
limited exceptional circumstances. Exceptions include where consumer
credit information relating to an individual is disclosed in the context of
a commercial credit application.
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The Code of Conduct, like Part IIIA of the Act, is legally binding. The
Code is accompanied by Explanatory Notes, which seek to explain, in a
systematic way, how Part IIIA and the Code interact.
ASIC’s role in industry codes of practice/conduct
ASIC has the power to approve codes in the financial services sector. It
has released a regulatory guide (RG 183) which sets out how it will
approve codes. Industry associations are not required to seek ASIC’s
approval of their code, but may choose to do so.
ASIC expects a code submitted for approval, to satisfy the following key
criteria:
Freestanding and written in plain English
Comprehensive body of rules (not a single issue guideline;
Enforceable against subscribers
Developed in a consultative way with key stakeholders
Effectively and independently administered
Adequately promoted
That compliance with a code is monitored and enforced
Containing appropriate remedies and sanctions
Subject to a mandatory review every three years.
ASIC approves codes as set out in RG 183 and in accordance with
s1101A of the Corporations Act 2001. This is a statutory power to
approve voluntary industry codes of conduct. ASIC does not have the
power to mandate industry codes. Industry must decide in the first
instance whether to develop a code, and then whether to have that code
approved by ASIC.
Regulatory Guide 183 describes the key features of an effective codes
regime that can apply to both large and small sections of the financial
services industry. The policy further sets out the process by which ASIC
will exercise its approvals power.
ACCC’s guidelines
The ACCC’s guidelines for developing effective voluntary industry codes
of conduct, published in February 2005, outline the essential elements of
codes of conduct:
Objectives of the code need to reflect specific stakeholder/business
concerns
Ensure that the framework and language is clear to all stakeholders
Set out the rules in the code that address common complaints and
concerns about industry practices
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Establish a code administration committee and its functions in the code
Include provisions for a complaints handling scheme in accordance with
AS4269
Incorporate in the code commercially significant sanctions for breaches
of the code
Provide for an independent review mechanism for when a complainant
is dissatisfied with an outcome
Incorporate mechanisms in the code that ensure consumer awareness
Incorporate mechanisms in the code that ensure industry awareness
Include provisions for relevant data collection
Specify a regular review process of the code
Avoid anti-competitive implications in the code
If anti-competitive implications are unavoidable seek ACCC
authorisation, and
Incorporate performance indicators in the code.
Applying codes of practice
The de-regulation of financial services in the 1980’s saw the removal of
what was seen as obstacles to free trade and innovation, to achieve a
market-driven economy and greater opportunities for wealth creation.
It also resulted, some have argued, in spectacular corporate crashes and
losses as well as a number of unscrupulous practices. The latter stages
of the change of the past two decades, therefore, have been to see a
return to “re-regulation”.
This re-regulation, however, has been different from before.
Governments have been reluctant to return to intervention in the
economic practices of business. The process of deregulation had been to
remove government, as far as possible, from this sort of involvement.
The focus of the regulations has related more to ensuring that qualified
practitioners conduct business ethically and with integrity. The
Government’s reluctance to become the regulator at practice level has
been replaced by industries forming themselves into professional groups
called “industry peak bodies”, such as the ABA, FPA, FBAA and MFAA.
These organisations are formed from within the industry’s own
practitioners with the focus of setting and maintaining professional
standards for the
industry.
Despite the need for new regulation, the industry continues to promote
two themes that underpin the conduct of professionals within the
industry.
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These are:
The requirement for all financial services practitioners to operate
according to strict practices, and
Codes of conduct, which ensure ethics and integrity.
The second of these themes reflects a commitment to ensure that retail
financial services clients are afforded the utmost protection from
unqualified or unscrupulous practitioners.
Ethical behaviour
According to philosopher and theologian Paul Tillich, “Ethics is not a
subject, it’s a life put to the test in a thousand daily moments.” In
essence, ethical behaviour is how we decide what is right from wrong.
Managing the ethical dimension is no less important, or valuable to
overall business success, than managing organisational risk and
regulatory compliance. It begins from a recognition that we bring a set
of personal values into a workplace that may or may not align with a
businesses stated values and the values implicit in its code of ethics.
New staff members may enter a business with already-formed views.
They need formally structured workplace opportunities to reconcile these
pre-existing values with those implicit in the workplace success formula.
Typically, in the absence of such learning opportunities, they will
continue to make decisions using their personal values.
Today, staff are expected to make more business decisions for
themselves. Businesses therefore need to make it very clear what they
stand for, what their corporate values or principles are and, importantly,
what behaviours are consistent and inconsistent with living these values.
More importantly, they need to equip their people to apply the
businesses values. Nowhere will this be more apparent than in applying
the responsible lending obligations.
Business ethical integrity is closer to what is sometimes referred to as
the spirit of the law. It encapsulates the ideal state that the law is
seeking to promote – the higher ground. As such, it encourages the
highest possible standards of behaviour rather than a minimalist
compliance orientation to avoid legal prosecution.
Sophisticated concepts such as the “fair play”, “trust”, “respect’ and
“mutual obligation” are the implicit aspects of “professional” behaviours
of everyday business life that fall into the ethical realm. Regardless of
what an individual or an organisation believes about business practices,
if society judges it to be unethical, that perception will directly affect the
organisation’s ability to achieve its business goals.
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The organisation’s accountability to this much wider range of
stakeholders often arises because it is dependent on the goodwill of
these stakeholders to continue to buy its product. .
Ethical business practice
A guide to principles of ethical business practice is as follows:
Be trustworthy, as customers want to do business with an person they
can trust; when trust is at the core of a business, it’s easy to recognise
Keep an open mind and ask for opinions and feedback from both
customers and staff
Honour obligations and commitments
Carry out business with due care, competence and diligence
Conduct business with integrity and in a manner consistent with
fostering and maintaining the good reputation of the industry, and
refrain from any conduct that may bring discredit to the industry.
Safeguard the confidences of staff and clients
Be respectful and always treat other people with professional respect
and courtesy regardless of any difference in position, title, age or
background.
Do not disseminate false or misleading information.
Identifying changes and implications of laws,
rules and regulations
The only constant in the Australian modern business environment is
change. There are external changes in politics, climate, laws, markets,
competition, and customer desires. There are internal changes of
ownership, products, services, processes, technology and measures of
effectiveness. Today’s businesses must be able to react quickly and
correctly to external change, while managing internal change effectively.
Even the most stable of businesses change.
External change, in many cases, is usually obvious and has immediate
impact. We often have no choice and must deal with external change in
order to survive, comply with new laws, meet customer requirements,
and to remain competitive.
The need for internal change is often less obvious, unless it is in
response to external change, and usually seems less immediate. This is
partially because changes we make to improve products, services and
practices may not have short-term results. Because internal change is
not necessarily forced upon an enterprise by outside factors, and
because results are not immediate, it is usually given less emphasis and
priority than enterprise reactions to external change.
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This is unfortunate, because only by carefully managing internal change
can an enterprise uniformly meet the challenges of external change.
Many changes have occurred within the last decade for the Financial
Services industry, especially in regards to lending – from deregulation to
state-regulation and now new Commonwealth Government legislation.
The need to keep abreast of any amendments is vital to your operation
as a loan consultant and the requirement to manage change in your
business to comply with any amendments to the laws that govern the
industry must be part of continuous good practice.
Primary regulations
The primary regulations relating to all businesses in the financial
services industry (to varying extents) are the:
Corporations Act
National Consumer Credit Protection Act
Consumer protection laws (including the new Australian Consumer Law)
Commonwealth Privacy Act
Various Tax Acts (Commonwealth and State)
Anti-Money Laundering and Counter-Terrorism Financing Act
Banking Act
APRA Prudential Standards
Occupational health and safety laws
Employment and discrimination laws
Intellectual property laws
Real property laws
Environmental laws
Insurance laws
Contract and e-commerce laws.
Obtaining information
The internet provides businesses with the ability to research changes to
their environments within seconds of the change being published.
This has led to the development of web sites that are dedicated to
providing information to industry members of changes. This ensures
that members have an opportunity to respond promptly and
demonstrate compliance to enhance their professional conduct. It will
ensure they have ample time to bring into effect any change required in
the way they do business.
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The following links provide an indication of current and future legislative
and regulatory practice:
www.afca.org.au
www.asic.gov.au
www.comlaw.gov.au
Maintaining contact with professional consultants
Establishing contacts with professional consultants is a critical
component of modern business. Lawyers and accountants are a
necessity in the industry covering some of the complexities of business
law, legislation, and regulation changes that are occurring in the global
environments facing Australian business.
Changes to federal and state taxes, insurance, superannuation and
employment laws, to name just a few, are varied and can be daunting to
many business operators. Therefore, the need for regular consultation with
professionals provides much of the information needed to adapt quickly.
The following web sites have published papers that have translated some of
the industry changes into a much more understandable language:
www.findlaw.com.au/
www.gadens.com.au/
Professional development
The commitment to ongoing professional development also provides
opportunities to stay up-to-date with changes. Whether by online
seminars or at an association function, peer networking and the formal
transfer of knowledge at these events is effective and useful.
ASIC in particular provides a number of methods for being updated on
the latest news and changes that may affect members of the industry:
www.asic.gov.au/asic/asic.nsf/byheadline/ASIC+credit+update?openDocu
ment
Communicating and implementing changes
Once changes to regulatory requirements are identified, they need to be
communicated to appropriate personnel in accordance with organisational
policy. Fortunately regulatory changes are made with sufficient notice and
consultation with industry so that implementation can be done effectively.
The process for communicating changes may vary considerably across the
industry and will be influenced by the size of each business and its
relationship to other organisations. For example, the traditional mortgage
broking business may receive updates from the main lenders and
aggregator with whom they are associated.
http://www.asic.gov.au/
http://www.comlaw.gov.au/
http://www.findlaw.com.au/
http://www.gadens.com.au/
http://www.asic.gov.au/asic/asic.nsf/byheadline/ASIC+credit+update?openDocument
http://www.asic.gov.au/asic/asic.nsf/byheadline/ASIC+credit+update?openDocument
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Depending on the nature and extent of the change, a training course may
be developed to communicate new knowledge required. In many instances,
regulatory change will require amendments to policies and/or procedures.
Based on the nature and extent of the change/s, these amendments
may simply be circulated with an explanatory note or underpin a
complete training program.
Some of the areas that procedures may need to cover and be reviewed
are:
Corporate governance
Business structures and tax
Confidentiality
Conflicts of interest
Staff recruitment and employment conditions
Investor and shareholder relationships
Anti-money laundering and suspect transaction reporting
Environmental reporting
Gifts and inducements
Competition and unlawful trade practices
New products
New customers
Strategic partnerships
Proprietary information (who owns employees’ inventions)?
Use of copyright materials and other IP (e.g. client logos)
Handling media enquiries
Customer complaints
Trust accounts and client property
Document retention
Licence condition monitoring and renewal
Reporting obligations (including continuous disclosure, if applicable)
Whistle blowing
Fraud reporting
Litigation
Dealings with regulators
Equal opportunity, discrimination, bullying, harassment and
victimisation
Occupational health and safety (licensing, training, first aid, accidents)
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Technology use policies including email and internet abuse, weblogs,
Facebook, Twitter
Relationships between staff
Drug, alcohol abuse or gambling
Bullying or discrimination in the workplace
Account opening procedures
Credit approval procedures
Debt collection
Marketing, including trade promotions and advertising sign-off and
website compliance
Terms and conditions of sale
Management accounting
Insurance coverage and risk management
Government grants
Business acquisitions and sales
Succession planning
Property ownership and leasing.
Reporting and risk management
Reporting and risk management systems can also be affected by
regulatory changes. Generally, a regulation imposts some form of
reporting to the regulatory body who will update any required changes
to reporting through notification to those affected.
A major effect of all regulation is compliance and the controls required
to ensure compliance is achieved. These should be developed in the
organisation’s risk management framework. The events that might be
identified as risks include:
Financial risks
Obligations under the credit legislation and licence
Governance
Human resources (e.g. resignation of a key person)
Technology and systems
Business strategy
Economic and environmental.
ASIC in particular provide extensive resources on regulation within the
financial services industry. They also issue Guidance publications, policy
statements, information releases, templates and FAQs to assist
organisations implement regulations and remain compliant.
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Most other regulatory bodies provide similar levels of assistance. Impact
statements are often prepared when major regulatory reform is
proposed, such as the NCCP.
Once plans are in place, compliance can then be monitored by:
Making regular and/or ad hoc inspections of employees’ work
Setting out reporting lines so that all staff are aware of the process for
reporting any instances of non-compliance
Specifying frequency of reports and meetings about compliance issues,
whom reports should be given to, and who should attend the meetings
Keeping minutes of all compliance-related meetings, copies of audit
reports on compliance, and results of reviews of representatives’
conduct
Ensuring that if instances of non-compliance recur, arrange a review by
an appropriate person who can make recommendations about whether
changes are needed to the compliance arrangements.
To keep up-to-date with regulatory changes it can also be useful to:
Formally review compliance arrangements e.g. every six months or
yearly, and updating them as required
If appropriate, engage an external person to conduct an audit of
compliance arrangements and advise whether they are adequate for
the business as it develops
Make someone responsible for reviewing instances of non-compliance
and making recommendations about whether any changes are needed
to the compliance arrangements to prevent a recurrence.
Impact of regulatory changes on products and services
An example of the impact of regulatory change on products and services
is the National Consumer Credit Protection Act 2009. This has been the
biggest change to the provision of consumer credit in Australia since the
UCCC was introduced and adopted in the late 1990s.
The changes impacted the development of credit products and services
(features, terms and conditions), how they are marketed, priced,
distributed, managed and reported on.
Without exception financial products and services contain some element
of technology, whether it is via electronic banking, account management
on a bank’s computer systems or web sites. Regulatory changes need to
be considered in light of the impact on the technology and systems used
to support each product and service.
Financial Services Professional Practice, Legislation and Codes of Practice
Learning Guide V3.2 © AAMC Training Group 211
Assessment
Now you have finished this section, we advise you to download and
complete written Financial Services Legislation & Compliance
Assessment and address the Fin Serv Skills Signoff with a third
party.
Financial Services Professional Practice, Legislation and Codes of Practice
212 © AAMC Training Group Learning guide V3.2