What You Need to Know About the Latest ACL Legislation Updates

Credit legislation updates coming in 2021

Posted by Anne Wilkinson on Nov 27, 2020 12:51:36 PM
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Estimated read time: 2-3 minutes
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Topics: Credit and Mortgage Broking CPD


There are some big compliance changes heading the way of brokers that are already locked in. In this article, we look at the key regulatory items contained within the government’s latest financial services reform bill.

Measures discussed in this blog were included in the Financial Sector Reform (Hayne Royal Commission Response) Bill 2020, which was passed by both Houses on 10 December 2020.


Enforceable Codes of Conduct

What’s in the Bill?

ASIC now has enhanced powers in relation to industry codes of conduct. ASIC has always had the authority to approve a voluntary industry code of conduct, but this has now been extended to allow the regulator to deem certain provisions within that code of conduct as being enforceable. Code provisions can only be made enforceable if the breach of the provision is likely to result in significant and direct detriment to the consumer. A breach of an enforceable code provision may attract civil penalties or other enforcement action.

The legislation also creates a framework for establishing and imposing mandatory financial services and consumer credit codes of conduct. A mandatory code of conduct would be prepared by Treasury in consultation with ASIC and industry groups and employed if the government deemed a section of the financial services industry unable or incapable of developing its own satisfactory voluntary code of conduct. Again, breaches of a mandatory code may attract civil penalties or other enforcement action.

What it means for you

The increased powers essentially improve consumer protection by enforcing standards of behaviour rather than relying on the various sectors of financial services, including lending and broking, to voluntarily adhere to their respective code and self-regulate. It will be up to the individual code administrators to notify their code subscribers about any enforceable provisions that are designated by ASIC.

Date of effect 1 January 2021

Breach reporting

What’s in the Bill?

AFS licensees are currently required to notify ASIC if they (or their representatives) breach their license obligations. The new legislation expands the kinds of situations that need to be reported by licensees to ASIC and institutes a comparable breach reporting regime for credit licensees.

The legislation sets out the types of incidents that must be reported to ASIC, known as ‘reportable situations’, and includes significant breaches as well as investigations that may be undertaken by a licensee to determine whether a significant breach has or will occur. Other reportable situations include conduct that constitutes gross negligence or fraud, misleading or deceptive conduct and serious compliance concerns.

It also expands the obligations so that licensees must report on concerns that they have in relation to a representative (a financial adviser or broker) who is operating under another licensee.

What it means for you

This is a significant change for the credit industry as it has not previously been subject to this level of self-reporting. Brokers will need to be very clear about their obligations and understand the process to be followed if a breach occurs. For example, licensees must lodge their breach reports with ASIC within 30 days of becoming aware of the reportable situation. Similarly, the addition of the requirement to report on misconduct by representatives working for other licensees will need to be handled carefully, as guided by the licensee’s compliance framework.

Date of effect 1 October 2021

Reference checking and information sharing

What’s in the Bill?

Another measure intended to align all sectors of the financial services industry relates to employing new representatives. Under current legislation, AFS licensees are required to follow specific reference checking and information sharing protocols in relation to the employment of financial advisers. This requirement has now been extended to include credit licensees and mortgage brokers. Failure to comply may result in civil penalties for the licensee.

What it means for you

The amendment aims to ensure that there is consistent practice throughout the industry, and that employment information will be available about all financial advisers and mortgage brokers. This means that any past misconduct conducted by a licensee that is moving from one industry to another (for example, a financial planner who then seeks to become a broker) can be ascertained more readily.

Date of effect  1 October 2021

Deferred sales model for add-on insurance

What’s in the Bill?

Add-on insurance products are those that are sold alongside other goods or services, including consumer credit insurance. The deferred sales model prohibits the sale of add‑on insurance products for at least four days after a customer has entered into a commitment to acquire the principal product or service.

Consumers also now have the right to return a product and obtain a refund where the product was sold in contravention of the provisions.

What it means for you

Brokers need to identify any products that they currently recommend which may be covered by this new legislation and amend sales processes to ensure the appropriate deferred timeline is met. They should also familiarise themselves with the new anti-hawing provisions (refer below).

Date of effect 5 October 2021

Anti-hawking Provisions

What’s in the Bill?

Anti-hawking provisions now apply to all financial products. Essentially, licensees and their representatives cannot make unsolicited contact with a consumer in order to sell or issue a financial product. For a consumer to consent to contact, they must make a positive, voluntary and clear request to be contacted about the financial product, before the contact is initiated. Consumers also have the power to withdraw consent at any time.

What it means for you

It is important to review your consumer engagement processes and, if necessary, implement a mechanism to capture consent. General advertising is still acceptable, as well as responding to contact from a potential customer, but it is important that all members of your team are aware of the actions that may constitute hawking.

Date of effect 5 October 2021

 


Related FEP learning:

Credit and Mortgage Broking CPD for Representatives

Credit and Mortgage Broking CPD for Responsible Managers

Accreditation

Our ACL CPD meets the requirements that industry associations, Mortgage & Finance Association of Australia (MFAA) and the Finance Brokers Association of Australia (FBAA), have specified for their members.

You're welcome to get in touch if we can assist with your training requirements.

 

Park responsible lending! There are some big compliance changes heading the way of brokers that are already locked in. In this article, we look at the key regulatory items contained within the government’s latest financial services reform bill.

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