The Australian Securities and Investments Commission (ASIC) will increase its focus on adviser reference checks in a bid to weed out what it calls ‘bad apples’ from the industry.
ASIC Senior Manager, Nick Coates, said risk-based surveillance undertaken by the regulator had revealed significant variations in reference checking processes used by licensees.
According to Mr Coates, while all licensees said they complied with requests from new employers to provide references for ex-staff, dealer groups also admitted that they frequently did not receive references back when enquiring about future employees.
“Clearly there’s an anomaly here,” Mr Coates said. “While some licensees admitted to us that on occasion they appointed people with only limited information or no information, the inconsistencies in reference checking are a concern for us.”
The key reasons licensees and dealer groups gave to ASIC for not obtaining references included an inability to track down the appropriate person within the candidates’ previous organisation, and a lack of mitigation measures against an unfavourable reference.
As a result, ASIC has commenced a project called ‘Bad Apples’, with the objective of implementing measures that frustrate the ability of bad apples to move from licensee to licensee.
Mr Coates said that the extended licensing enforcement powers provided to ASIC through the FoFA legislation did go some way to achieving this objective, but that reference checking was a very practical way of identifying and improving the conduct of poor advisers.
ASIC has previously attempted to address this issue, publishing a reference checking handbook for financial services providers in 2007. However, Mr Coates acknowledged that although most licensees were aware of the handbook, many had not implemented its recommendations.
Mr Coates said ASIC would issue a consultation paper on the issue of reference checks, and asked all licensees in the interim to undertake a review of their current reference checking processes.
Mr Coates was speaking at the Association of Financial Advisers (AFA) National Roadshow event in Sydney last week, where he also told attendees about ASIC’s FoFA implementation plan.
To read about Senator Mathias Cormann’s presentation to the AFA, click here.
For comments from AFA CEO, Richard Klipin, on the future of the advice industry, click here.
