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REGULATION IMPACT STATEMENT

ASIC implementation of the National Credit Act: Training and competence of credit licensees

December 2009

About this Regulation Impact Statement

This Regulation Impact Statement (RIS) addresses ASIC’s proposals for

new regulatory obligations in relation to training and competence of credit

licensees under the National Consumer Credit Protection Act 2009.

Regulation Impact Statement: ASIC implementation of the National Credit Act: Training and competence of credit licensees

© Australian Securities and Investments Commission December 2009

What this Regulation Impact Statement is about

1 This Regulation Impact Statement (RIS) addresses ASIC’s proposals for new

regulatory obligations in relation to training and competence of credit

licensees under the National Consumer Credit Protection Act 2009.

2 In developing our final position, we have considered the regulatory and

financial impact of our proposals. We are aiming to strike an appropriate

balance between:

maintaining, facilitating and improving the performance of the financial

system and entities in it;

promoting confident and informed participation by investors and

consumers in the financial system; and

administering the law effectively and with minimal procedural

requirements.

3 This RIS sets out our assessment of the regulatory and financial impacts of

our proposed policy and our achievement of this balance. It deals with:

the likely compliance costs;

the likely effect on competition; and

other impacts, costs and benefits.



Contents

A Introduction ............................................................................................ 4 Background .............................................................................................. 4 Assessing the problem ............................................................................ 7 Objectives of government action ............................................................. 8 Issues ....................................................................................................... 9

B Issue 1: Organisational competence .................................................10 Assessing the problem ..........................................................................10 Objectives ..............................................................................................11 Options and impact analysis ..................................................................11 Recommendation ...................................................................................20 Consultation ...........................................................................................20 Implementation and review ....................................................................21

C Issue 2: Qualification and experience requirements for key people of mortgage broking businesses ..........................................23 Assessing the problem ..........................................................................23 Options and impact analysis ..................................................................23 Recommendation ...................................................................................25 Consultation ...........................................................................................25 Implementation and review ....................................................................25

D Issue 3: Ongoing training for key people and representatives acting as mortgage brokers................................................................27 Assessing the problem ..........................................................................27 Options and impact analysis ..................................................................27 Recommendation ...................................................................................29 Consultation ...........................................................................................30 Implementation ......................................................................................30

E Issue 4: Representative training ........................................................31 Assessing the problem ..........................................................................31 Options and impact analysis ..................................................................31 Recommendation ...................................................................................34 Consultation ...........................................................................................34

F Issue 5: Training requirements for representatives of mortgage brokers who meet ASIC’s Tier 1 training requirements ..................35 Assessing the problem ..........................................................................35 Options ...................................................................................................35 Impact analysis ......................................................................................36 Recommendation ...................................................................................37 Consultation ...........................................................................................37 Implementation ......................................................................................38



A Introduction

Background

National Credit Act

4 The National Consumer Credit Protection Act 2009 (National Credit Act),

the National Consumer Credit Protection (Transitional and Consequential

Provisions) Act 2009 (Transitional Act) and the National Consumer Credit

Protection (Fees) Act 2009 (Credit Fees Act)—collectively the Consumer

Credit Protection Reform Package—outline a new national consumer credit

regime. The new regime:

(a) gives effect to the Council of Australian Governments’ (COAG)

agreements of 26 March and 3 July 2008 to transfer responsibility for

regulation of consumer credit, and a related cluster of additional

financial services, to the Commonwealth; and

(b) implements the first phase of a two-phase Implementation Plan to

transfer credit regulation to the Commonwealth, endorsed by COAG on

2 October 2008.

5 The Consumer Credit Protection Reform Package establishes the key

components of the proposed national credit regime, which include:

(a) a comprehensive licensing regime for those engaging in credit activities

via an Australian credit licence (credit licence) to be administered by

the Australian Securities and Investments Commission (ASIC) as the

sole regulator;

(b) industry-wide responsible lending conduct requirements for credit

licensees;

(c) improved sanctions and enhanced enforcement powers for the regulator;

and

(d) enhanced consumer protection through dispute resolution mechanisms,

court arrangements and remedies.

Obligations on licensees under the National Credit Act

6 The reforms introduce a comprehensive national licensing regime, which is

to be distinguished from the current regulation of financial services under the

Corporations Act 2001 (Corporations Act).

7 Regulation of consumer credit in the new regime will be the responsibility of

ASIC. A key component of the new credit regime is that businesses that



provide credit services or that are engaged in other ‘credit activities’ will be

required to be licensed and meet a range of general conduct obligations.

8 Under s47(1) of the National Credit Act, credit licensees must meet ‘general

conduct obligations’.

9 These obligations require credit licensees to:

(a) do all things necessary to ensure that the credit activities authorised by

the licence are engaged in efficiently, honestly and fairly (s47(1)(a));

(b) have in place adequate arrangements to ensure that clients are not

disadvantaged by any conflict of interest that may arise wholly or partly

in relation to credit activities engaged in by the credit licensee or their

representatives (s47(1)(b));

(c) comply with the conditions on the licence (s47(1)(c));

(d) comply with the credit legislation (s47(1)(d));

(e) take reasonable steps to ensure that their representatives comply with

the credit legislation (s47(1)(e));

(f) maintain the competence to engage in the credit activities authorised by

the licence (s47(1)(f));

(g) ensure that their representatives are adequately trained, and are

competent, to engage in the credit activities authorised by the licence

(s47(1)(g));

(h) have an internal dispute resolution procedure that:

(i) complies with standards and requirements made or approved by

ASIC in accordance with the regulations; and

(ii) covers disputes in relation to the credit activities engaged in by the

licensee or their representatives (s47(1)(h));

(i) be a member of an approved external dispute resolution scheme (s47(1)(i));

(j) have compensation arrangements in accordance with s48 (s47(1)(j));

(k) have adequate arrangements and systems to ensure compliance with the

licensee’s obligations under s47, and a written plan that documents

those arrangements and systems (s47(1)(k));

(l) unless they are a body regulated by APRA:

(i) have available adequate resources (including financial,

technological and human resources) to engage in the credit

activities authorised by the licence and to carry out supervisory

arrangements (s47(1)(l)(i)); and

(ii) have adequate risk management systems (s47(1)(l)(ii)); and

(m) comply with any other obligations that are prescribed by the regulations

(s47(1)(m)).



Regulatory impact of the National Credit Act

10 The regulatory impact of the credit licence obligations established under the

National Credit Act was assessed in the RIS attached to the Explanatory

Memorandum to the National Consumer Credit Protection Bill 2009

(National Credit Bill).1

11 In summary, that RIS found:

(a) The main group affected is industry participants who will need to

become holders of a credit licence in order to continue engaging in

credit activities.

(b) The most significant impact will be on those who only conduct business

in states or territories where there is currently no licensing or

registration scheme. It can be anticipated that these businesses will face

significant transitional costs.

(c) Licensing will involve one-off costs associated with applying for a

credit licence, together with ongoing fees for lodging various

documents. There will also be costs of complying with the ongoing

obligations associated with the licence, including, in particular:

(i) training and supervision costs; and

(ii) maintaining adequate compensation arrangements (e.g. professional

indemnity insurance).

12 The size of the affected population was also addressed in the RIS attached to

the Explanatory Memorandum to the National Credit Bill. However, there is

some degree of uncertainty about the size and structure of the market, as

there is no nationally consistent registration or licensing framework to

provide that information.

13 The licensing system existing in Western Australia provides some guidance

as to the size of the regulated population. Western Australia has reported that

there are approximately 190 credit providers registered in that jurisdiction, of

whom approximately 100 operate nationally. These figures do not include

authorised deposit-taking institutions (ADIs) registered under the Banking

Act 1959 (approximately 500 nationally) that may operate in Western

Australia, as ADIs are not required to be licensed under WA legislation.

However, many ADIs will be subject to the new regulatory framework.

14 In addition to credit providers, the new regulatory framework also covers

persons whose business involves providing credit services such as suggesting

consumers enter into credit contracts and consumer leases, and assisting them

to enter into credit contracts and consumer leases. Such participants are

1

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primarily (though not exclusively) comprised of finance brokers. There are

approximately 3,000 licensed finance brokers in Western Australia and, of

those, around 200 have addresses outside Western Australia.

15 Persons other than brokers that are part of the credit supply chain and may

be covered by aspects of the new regulatory framework include aggregators

and mortgage managers. It is estimated that between one and two hundred

persons would fall into those groups. Persons whose business is the

collection of debts (either as assignee or as agent of a credit provider) will

also be subject to aspects of the proposed regime, including licensing.

16 Based on the above, the RIS attached to the Explanatory Memorandum to

the National Credit Bill estimated that the affected population, in terms of

industry participants, could be as high as 10,000 nationally.

17 There are some overlaps between the new credit licensing regime and the

existing Australian financial services (AFS) licensing regime administered

by ASIC. It is likely that some of the affected parties are already subject to

regulation by ASIC in some way because they hold an AFS licence. To the

extent that this affects the impact of each issue covered in the RIS, this is

addressed in the relevant parts below.

What this RIS is about

18 This RIS assesses the regulatory impact of ASIC’s proposals associated with

implementation of the National Credit Act. It does not deal with the decision

to require credit providers to be licensed, as this is an obligation imposed

under the National Credit Act. Rather, this RIS assesses the regulatory

impact of those decisions within ASIC’s discretion that are necessary for

implementation of the National Credit Act by ASIC.

19 Because the national credit regime is new, ASIC will continue to monitor the

impact of our regulation on the industry, and will revise our approach if

necessary.

Assessing the problem

Need for action as a result of the National Credit Act

20 The National Credit Act requires credit licence applicants and credit

licensees to adhere to general licensee obligations, including:

(a) maintaining the competence to engage in the credit activities authorised

by the licence—organisational competence (s47(1)(f)); and



(b) ensuring their representatives are adequately trained, and are competent,

to engage in the credit activities authorised by the licence—representative

training (s47(1)(g)).

21 Although the National Credit Act imposes a number of obligations on people

who are required to obtain a credit licence, these obligations are expressed as

high-level principles. For example, in relation to training, the National Credit

Act requires that credit licensees ensure that their representatives are

adequately trained, and are competent, to engage in the credit activities

authorised by the licence. However, the law provides no standards or

guidance as to what ‘adequate’ training means.

22 This is a problem because without standards or guidance as to what

‘adequate’ training means, a variety of different and inconsistent approaches

could be taken across the industry in order to comply with the requirement.

23 Taking no action would cause confusion for industry in determining the

behaviour required in order to comply with the law. This lack of clarity also

poses a risk to consumers if credit licensees’ confusion results in them

behaving in a way that is adverse to consumer confidence.

24 Government intervention is needed to address the problem because it arises

from a lack of clarity in the law. While it may be possible that, in general,

competition among credit licensees to improve their reputation may push up

standards to a level that achieves appropriate consumer protection, training

and competence of licensees are not key issues on which consumers make

their purchasing decisions, so are unlikely to have a significant effect on

competitive pressures in the market.

Objectives of government action

25 In relation to implementation of the Consumer Credit Protection Reform

Package in general, ASIC’s proposals seek to balance ASIC’s objectives to:

(a) maintain, facilitate and improve the performance of the financial system

and entities in it;

(b) promote confident and informed participation by investors and

consumers in the financial system; and

(c) administer the law effectively and with minimal procedural

requirements.

26 In relation to competence and training, the aims of ASIC’s proposals in this

area are to:

(a) provide certainty to credit licensees about the competence standards we

expect from them and our compliance approach; and



(b) protect consumers by ensuring that those businesses that are licensed to

engage in credit activities have sufficient competence to ensure they

provide these activities competently.

Issues

27 Under the general topic of training and competence requirements, ASIC has

considered proposals in relation to five specific issues, which are addressed

in this RIS:

(a) Issue 1: Organisational competence;

(b) Issue 2: Qualification and experience requirements for key people of

mortgage broking businesses;

(c) Issue 3: Ongoing training for key people and representatives acting as

mortgage brokers;

(d) Issue 4: Representative training; and

(e) Issue 5: Training requirements for representatives of mortgage brokers

who meet ASIC’s Tier 1 training requirements.



B Issue 1: Organisational competence

28 This section considers options for achieving appropriate organisational

competence of credit licensees. Organisational competence refers to a

licensee’s capacity to engage in the credit activities authorised by their

licence effectively in compliance with the credit legislation.

Note: For the purposes of this RIS, we use the phrase ‘key people’ rather than the term

‘responsible managers’ used in our regulatory guide. See paragraph 69 for a full

explanation of this change in terminology.


Current approach

29 ASIC has not previously regulated credit as regulation has been at the individual

state or territory’s discretion and the approach taken varies from state to state.

The approach taken in relation to finance brokers in each state is instructive.

Western Australia requires finance brokers to satisfy particular experience and

qualification requirements before they can be given a licence to practise as a

finance broker. Western Australia is the only state that requires particular

qualifications and experience from their finance brokers—the Australian Capital

Territory requires brokers to be registered to practise, and New South Wales and

Victoria have a negative licensing system where they are able to prohibit brokers

from trading. South Australia, Tasmania, the Northern Territory and Queensland

do not have specific legislation regulating brokers and so do not have

competence or training requirements for their brokers.

30 Finance brokers in Western Australia are regulated by the Finance Brokers

Control Act 1975, which requires licensees to have particular people with

qualifications and experience. For an ‘A’ class licence, the requirement is two

years full-time relevant experience in the preceding five years, successful

completion of a Certificate IV in Financial Services (Finance/Mortgage

Broking), including relevant supplementary WA material provided by an

approved training provider, and successful completion of a Diploma of

Mortgage Lending, a Diploma of Lending or a Diploma of Financial Services

(Lending) provided by an approved training provider. For a ‘B’ or ‘C’ class

licence, the requirement is two years full-time relevant experience in the

preceding five years and successful completion of a Certificate IV in Financial

Services (Finance/Mortgage Broking), including relevant supplementary WA

material provided by an approved training provider.

31 While credit providers in Western Australia are also required to be licensed,

there are no qualification and experience requirements set, although the



former Department of Consumer and Employment Protection (DOCEP, now

called the Department of Commerce) did ask for details of qualifications and

experience in reviewing licence applications.

Problems

32 In considering whether we should grant a credit licence, ASIC is required to

have regard to whether certain people who perform duties in relation to

credit activities are fit and proper (s37(1)(c) and s37(1)(d)). While sufficient

competence is an important part of being fit and proper, the term ‘fit and

proper’ is much broader than just competence and encompasses many other

considerations such as character, honesty and integrity.

33 However, there is no explicit guidance in the National Credit Act on what

credit licensees are expected to do in order to meet the competence and

training requirements because:

(a) this is the first time there has been a national credit regime with uniform

general conduct obligations. The different approaches taken to credit in

each state and territory previously mean that operators of credit

businesses will have different understandings of what it means to be

competent, influenced by their previous experience in their particular

location;

(b) without explicit guidance, this could lead to confusion and

inconsistency of approach on how licensees ought to meet their

competence and training requirements; and

(c) it would render the requirement to be competent, and to have

representatives who are adequately trained, meaningless, if concrete

direction is not given on what practical steps need to be taken to meet

the requirement.

Objectives

34 The aims of ASIC’s proposals in this area are to:

(a) provide certainty to credit licensees about our compliance approach; and

(b) protect consumers by ensuring that those businesses that are licensed to

engage in credit activities have sufficient training to ensure they provide

these activities competently.

Options and impact analysis

35 Possible options for assessing organisational competence are:



Option 1: Set a minimum level of qualification and experience that all key

people (those people who need to be fit and proper under s37(1)(c) and

s37(2)(h) or a subset) in credit businesses must obtain.

Option 2: Allow key people who have several years of experience but no

qualifications.

Option 3: Exempt streamlined licensees from ASIC’s organisational

competence requirements.

Option 4: Encourage industry to set its own training standards for its key

people.

Option 1: Set a minimum level of qualification and experience that all key people in credit businesses must obtain

Description of option

36 Under this option, all credit businesses are subject to the same requirement

to have key people who have a minimum level of qualifications and

experience. This means that all key people need:

(a) credit industry qualifications to at least the Certificate IV level; or

(b) another relevant higher level qualification; and

(c) at least two years relevant problem-free experience.

Impact on industry

37 This option would affect every business that participates in the credit

industry, including mortgage brokers, mortgage managers, aggregators,

accountants providing credit assistance, lenders, lessors and some financial

advisers, to an equal extent. Regardless of the exact field the business

operates in, all credit licensees would be equally affected by having to

complete details of their key people in the credit licence application. Larger

businesses would need to provide more detail than smaller businesses as they

would have more key people, but this is a natural and inevitable consequence

of the licensing process.

38 The requirement to have specific qualifications would affect small

businesses to a greater degree than larger organisations, mainly because

larger organisations frequently already require specific qualifications from

their key people as a general standard (small businesses may take a more

entrepreneurial approach and not be so rigid in their qualification

requirement—responses to Consultation Paper 113 Competence and training

for credit licensees (CP 113) showed that small businesses tended to value

experience more than qualifications). It is likely that these qualifications

often will already meet our requirements, as we have attempted to be flexible



with prescribing qualifications such that a large range of qualifications will

satisfy the requirements, while still being relevant to the key person’s role. A

large proportion of small businesses are unlikely to have required their key

people to have such qualifications. Also, larger organisations often belong to

industry associations, which also have requirements for their members to

hold particular qualifications, while small businesses often do not join

industry associations as it is expensive, and therefore also have less incentive

to obtain qualifications. Larger organisations are likely to benefit from

economies of scale in terms of the revenue generated by the business and the

number of people required to obtain these qualifications, compared to small

businesses, also meaning the larger businesses may be able to negotiate bulk

rates to train their staff at reduced costs.

39 We anticipate that those people who do not currently have appropriate

qualifications to meet our requirements will be more likely to choose to gain a

relevant credit-specific Certificate IV qualification rather than a more general

higher level qualification, as the Certificate IV qualifications are cheaper and

quicker to obtain. We expect that all appropriate Certificate IV qualifications

will be roughly equivalent to each other in terms of costs and time to obtain

them, regardless of the section of the credit industry the key person is working

in. While this is the case for existing relevant Certificate IV qualifications, it is

hard to predict what the costs will be for those courses that have not been

created yet. However, normal competitive forces should dictate that the costs

and time to obtain the qualifications that have yet to be developed will be

comparable in cost and time to existing courses as, if this were not the case,

credit industry participants would choose existing courses rather than the new

courses to meet the requirements.

40 Submissions in response to CP 113 from industry associations representing

small businesses canvassed the possibility that the cost of complying with

the training and competence requirements, when added to the costs

associated with professional indemnity insurance, joining an external dispute

resolution scheme, registration and other licensing requirements under the

new credit regime, could push small businesses out of the industry. One

submission from small businesses to CP 113 estimated costs of the

Certificate IV level courses to be $1000 or more per key person. ASIC has

addressed this concern by being flexible about the type of course that would

meet the requirements, including credit industry-specific qualifications to at

least the Certificate IV level, or more general qualifications relevant to a

person’s role. A brief review of courses for the Certificate IV in Financial

Services (Finance/Mortgage Broking) undertaken by ASIC appears to

indicate course costs range from approximately $600 for self-paced study

online, up to $1300 for face-to-face intensive workshops that would cover

the course content in three days.



41 We acknowledge that the requirement to obtain Certificate IV qualifications

is likely to have a more significant impact on smaller firms and those located

in regional areas. However, we think this is necessary to ensure that

businesses meet minimal expertise levels in order to fulfil the training and

competence requirement. We think this is best obtained by implementing a

minimum qualification and experience requirement. Most registered training

organisations offer flexible arrangements for undertaking their Certificate IV

courses, including distance and self-paced study options, which make this

requirement less burdensome for those businesses that are not located in

metropolitan areas.

Impact on consumers

42 A recent Australian survey has shown that one in five people are unable to

make their debt repayments on time. Credit providers inherit the

consequences of poor lending decisions, while consumers inherit the

consequences of poor borrowing decisions. Both credit providers and

consumers lose when circumstances beyond their control change. Credit

assistance providers rarely suffer losses from their activities.

43 Setting minimum qualifications and experience requirements for all key

people in the credit industry should ensure that all providers of credit and

credit activities have a minimum level of knowledge regarding how to

perform their roles competently, thereby minimising the chances of these

services being provided poorly as a result of ignorance. This should raise

standards in the industry to the benefit of all consumers.

44 While this option does not impose direct costs on consumers, it is likely that

the extra costs incurred by industry in complying with the requirements will be

recouped by being passed on to consumers. In particular, this would

potentially result in the costs of using a mortgage broker becoming greater, but

with an increase in the quality of this service across the industry. Potentially,

this increase in the cost of using a mortgage broker might dissuade consumers

from going through this channel, as directly approaching banks or other

lenders to discuss loans would not be as expensive. (There is a licensing

exemption for those people who offer credit assistance in relation to products

that are sold by an associated lender: these people are not required to meet the

training requirements and so the costs of using these people should not rise.)

However, consumers are aware that mortgage brokers save time and allow

consumers to choose between a range of products, so taking into account the

potential amount of money involved in purchasing a home, we think it is

unlikely that the slightly increased costs of using mortgage brokers will

dissuade consumers from using them entirely.



Impact on government

45 To implement this option, ASIC needs to release a new regulatory guide

covering training and competence for credit licensees. ASIC has already

received funding from the government to assist us to carry out policy work

associated with consumer credit, and ASIC would not apply for further

funding in relation to this work.

Table 1: Option 1 – Impact analysis

Benefits Costs

Consumers Better service of consumer needs by credit

providers and credit assistance providers

required to familiarise themselves with

clearly defined subject matter in order to be

key people (+3)

Cost of using credit service providers like

mortgage brokers likely to increase due to

industry passing on costs of training key

people (-1)

Industry Increased certainty about what training

needs to be done to meet ASIC’s

requirements (+2)

Training course providers and industry and

professional associations will benefit from

increased demand for training (+3)

Initial costs of training key people

(approximately $600–$1300 per key

person), and ongoing costs of CPD

(recurring yearly expense) (-2)

Government Reducing risks that consumers are

channelled into inappropriate loans, which

could potentially build up to another GFC

(+2)

Transitional and ongoing costs of

developing and enforcing competence

requirements for credit licensees (-1)

Sub-rating +10 -4

Overall rating +6

Table 2: Rating scale for individual impacts

+3 +2 +1 0 -1 -2 -3

Large

benefit/

advantage

compared to

‘do nothing’

Moderate

benefit/

advantage

compared to

‘do nothing’

Small

benefit/

advantage

compared to

‘do nothing’

No

substantial

change from

‘do nothing’

Small cost/

disadvantage

compared to

‘do nothing’

Moderate

cost/

disadvantage

compared to

‘do nothing’

Large cost/

disadvantage

compared to

‘do nothing’

Option 2: Allow key people who have several years of experience but no qualifications, otherwise as per Option 1


46 Under this option, ASIC would use the same model outlined in Option 1, but

modify it to allow key people with no qualifications where the key person



has several years of problem-free experience. In CP 113, ASIC asked

whether we should accept more experience and lesser or no qualifications on

an ongoing basis.

Impacts

47 Feedback to CP 113 was divided on whether it was appropriate to place

more importance on educational standards than experience. The Australian

Debt Buyers and Collectors Association, the National Financial Services

Federation and the Australian Finance Conference were of the view that

ASIC’s proposal to require a minimum Certificate IV level qualification in

addition to experience devalued business experience as inferior to

qualifications, when in fact educational standards cannot bring value to the

diverse range of business models in the credit industry. Registered training

organisations and Challenger Financial Services Group Ltd felt that while a

person may appear to have extensive experience, it is often only in relation

to a narrow range of credit functions and responsibilities. Submissions were

also divided on what the appropriate minimum level of qualifications should

be. Some agreed with our proposal for Certificate IV level qualifications,

while others thought diploma level qualifications were more appropriate as a

minimum qualification to require.

48 Strong views were expressed in some submissions to CP 113 in support of

accepting key people who had no qualifications but many years of

experience, in contrast to ASIC’s proposal to require a minimum of a

Certificate IV level qualification in a relevant industry-specific area. ASIC’s

proposal in CP 113 was to allow experience alone on a transitional basis up

until 31 December 2013, after which time all key people would need to have

both a suitable qualification and at least two years problem-free experience

in order to be a key person. Some respondents to CP 113 were critical of an

approach that allowed key people with experience alone, as it would mean

that people with many years of experience, but only within a limited field,

could be key people, and that this was unsatisfactory.

49 Existing Certificate IV qualifications relevant to the credit industry are part

of the Financial Services Training Package, which is nationally recognised

and is an accepted qualification standard in both the financial services

industry and the training industry. In order to gain a Certificate IV level

qualification, applicants need to study units that specifically cover the

practical and legal aspects that affect a person working in the credit industry.

For example, the Certificate IV in Financial Services (Finance/Mortgage

Broking) requires applicants to study units such as FNSFBRK402B ‘Provide

finance and/or mortgage broking services’ and FNSCOMP501B ‘Comply

with financial services, legislation, industry and professional codes of

practice’.



50 The units that make up Certificate IV qualifications relevant to credit have

been purposely designed to span key competencies necessary to perform

credit roles. While many years of problem-free experience is an indication

that a person may have the competencies they need to perform their role

properly, it is not a guarantee that this is the case. A person may not have all

the competencies they need for their role, but only rarely are they required to

exercise those competencies, while their day-to-day duties comprise mainly

functions they do have the competencies to perform. Part of the problem lies

in the fact that the credit industry has not been nationally regulated in the

past. Inconsistent regulation of the credit industry between states, with most

states not taking an active role in licensing credit industry participants,

means that problems with credit industry participants were more capable of

going undetected by regulators, rather than a ‘problem-free’ history

necessarily showing a lack of problems.

51 Consequently, we do not consider ‘problem-free’ experience to be a

reasonable substitute for formal qualifications.

Option 3: Exempt streamlined licensees from ASIC’s organisational competence requirements, otherwise as per Option 1


52 This option aligns with other requirements of the National Credit Act

because ADIs, lenders mortgage insurers (LMIs) and persons applying for a

licence to engage in credit activities of the kind they are authorised to engage

in under a law of a state or territory that meets certain conditions (WA

brokers) may automatically be granted a licence upon application to ASIC

(s38 of the National Credit Act and reg 9 of the National Consumer Credit

Protection Regulations 2010 (National Credit Regulations)). These form the

group of streamlined licensees. Streamlined licensees will not have their

organisational competence evaluated on entering the credit regime. While

streamlined licensees also do not get formally evaluated on their

organisational competence later on in the process, they are expected to

adhere to the organisational competence requirements on an ongoing basis.

Further, ADIs are specifically exempt from s37—that is, ASIC is not

required to consider whether their directors, secretaries and senior managers

are fit and proper. This recognises their dual regulation by APRA and ASIC.

Impact on industry

53 Exempting streamlined applicants from these requirements would decrease

their compliance costs associated with meeting the training and competence

obligations, as streamlined applicants would not have to make any changes

to the way in which they currently deal with training or competence within



their organisations and would therefore be required to submit less paperwork

to ASIC.

54 While ASIC must grant a credit licence to an ADI under s38, and so does not

assess the ADI’s organisational competence initially, the licence is granted

on the basis that the ADI will comply with its obligations as a licensee. This

includes meeting the organisational competence obligation on an ongoing

basis. This means that, even if an ADI is initially exempted from ASIC’s

training and competence requirements, it would nevertheless be required to

meet this obligation in the same way as other licensees.

55 Similarly, ASIC is not to consider whether we have reason to believe the

person is not fit and proper to engage in credit activities for the purposes of

granting a licence to streamlined applicants who are streamlined by the

process outlined in reg 9 of the National Credit Regulations (reg 9(3)).

However, under reg 9(4)(d) of the National Credit Regulations, these

applicants must provide ASIC with a written statement that the person will

comply with the person’s obligations under the National Credit Act,

including meeting the organisational competence obligation on an ongoing

basis.

56 In response to CP 113, the Australian Bankers Association (ABA) noted that

if banks had to demonstrate compliance with the organisational competence

obligations, they were concerned about who their ‘key people’ ought to be.

In particular, if the key people were the same group of people APRA regards

as responsible people in the Australian Prudential Standard 520 (APS 520)

model, these people would never be able to meet the 20 hours of continuing

professional development (CPD) a year, proposed to be required under ASIC

policy, because they dealt in many areas besides credit in their day-to-day

duties.

57 ASIC has addressed this concern through allowing ADIs to select an

appropriate subset of their key people, which would mean that they did not

have to select members of their boards as key people (who would be the

primary people they were concerned about not being able to meet the CPD

requirements).

Impact on consumers

58 This option would potentially result in inconsistent standards of competence

between streamlined applicants and other credit licensees, which could be

detrimental to consumers as the services they could access from streamlined

and non-streamlined applicants would be governed by different rules relating

to organisational competence. While ADIs are required to meet APS 520, set

by APRA, which makes certain provisions relating to the training and

competence of responsible managers, their requirements are very different

from those proposed by ASIC in Option 1 above. APS 520 and the



associated guidance published by APRA require regulated institutions to

consider the competence and experience of their responsible people, which

may include documenting the training or induction processes for each

position. The ASIC model in credit requires all responsible managers to

meet minimum qualification and experience requirements. We do not think it

is appropriate to deviate from the general principle when looking at ADIs to

accommodate these differences.

Impact on government

59 This option would potentially result in savings for government in terms of

how much time ASIC would need to spend reviewing applications for

licences. All streamlined applicants would not need to submit anything in

relation to their key people as organisational competence would be taken for

granted. This option would have a negligible impact on ASIC’s ongoing

compliance activities.

Option 4: Encourage industry to set its own training standards for its key people


60 Under this option, ASIC would not require key people to have specific

qualifications or experience. Instead, in recognition of the diversity of roles

in the credit industry, the credit industry would be encouraged to set its own

training standards for its key people, taking into account the specific

requirements of the particular licensee’s business. This option would place

the onus squarely with the licensee for determining how it would be best for

them to comply with the training and competence requirements.

Impacts

61 This option would lead to confusion and inconsistency in the credit industry

about what individual credit licensees need to do to fulfil their organisational

competence obligation. The credit industry is very diverse and there are

several industry bodies representing different sectors within it. It is likely

that this approach would result in different sectors taking very different

approaches to what comprises an appropriate industry standard for key

people to adhere to, and that this would cause dissatisfaction and criticism

between the different sectors of their differing approaches. A broad

interpretation of this approach would also mean that it would be possible for

sole traders to argue that they did not need to set training standards for

themselves, as it was not appropriate for their business model. This would

lead to very inconsistent standards of practice across the industry, which

could only be to the detriment of consumers, who would not be able to rely

on ASIC’s guidance to ensure that people in the credit industry were

sufficiently trained to provide credit services competently. This is not a



realistic option because more general guidance is necessary to assist credit

licensees to interpret what their obligations are in relation to the training and

competence requirement. It is also not realistic for us to inform applicants on

a case-by-case basis what would be required from them to meet the training

and competence requirement, as the number of licensees is too great to do

this and to provide this level of specific guidance would be likely to

introduce a great deal of inconsistency in approach as it would require a

large number of ASIC staff to field such inquiries.

Recommendation

62 We recommend Option 1. We think that setting a minimum level of

education and experience for key people should ensure that key people have

a more consistent knowledge base, which should in turn ensure that the

service provided to consumers is of a more consistent quality across the

industry.

63 We think that experience alone is not sufficient. It is appropriate to require

qualifications in addition to experience because this ensures that key people

cover all essential areas of knowledge to perform their roles competently, for

which experience alone may be too specialised.

64 While it is possible to argue that streamlined applicants should be treated

differently as part of the initial licensing process, we think the fact they have

an ongoing obligation to meet organisational competence means they should

not be exempted from ASIC’s requirements.

Consultation

65 In CP 113, we proposed that applicants identify in their licence application

the people covered by the fit and proper test (their ‘key people’), or a subset,

for ASIC to assess the licensee’s organisational competence. We proposed

that these people should have at least two years relevant problem-free

experience and generally hold a credit industry-specific qualification to at

least the Certificate IV level, or a more general qualification relevant to their

role.

66 As the ‘fit and proper’ concept includes competence, we thought it

appropriate to inquire into the qualifications and experience of a credit

licensee’s, or applicant’s, key people when assessing organisational

competence.

67 Responses were generally supportive of ASIC’s approach in looking at the

qualifications and experience of key people, although some thought ASIC’s



approach used in financial services licensing by nominating responsible

managers was more appropriate. In financial services licensing, the licence

applicant would have to nominate their responsible managers on the licence

application. These could be anybody in the organisation, provided they had

direct responsibility for day-to-day decisions in the organisation. An industry

association submitted that establishing that organisational competence for

the financial services regime should be sufficient to establish organisational

competence for the credit regime.

68 We are of the view that it would not be appropriate to adopt the model from

the financial services regime. Using the ‘key people’ model provides more

certainty for licensees about which people they need to nominate, while the

‘responsible manager’ model used in the financial services regime allows a

more arbitrary selection of people to be nominated, which results in greater

inconsistency between businesses on who is nominated to perform the

responsible manager role.

69 Some concern was raised by submissions to CP 113 about the inconsistent

use of the term ‘key person’ in the financial services regime and the credit

regime, and how this could cause confusion for those licensees who operated

in both regimes. In the financial services regime, ‘key person’ refers to a

person who a licensee is heavily dependent on, such that a special condition

is placed on the licence. As a result, we have modified the terminology to

make it more consistent between the two regimes. Consequently, instead of

our guidance referring to ‘key people’, we have renamed them ‘responsible

managers’. However, this is merely a terminology change rather than a

change that modifies the model proposed. While the term ‘responsible

manager’ does not have an identical meaning in the two regimes, they at

least now refer to comparable positions in the two regimes. To minimise

confusion, for the rest of this paper, we have maintained the use of the term

‘key people’ to keep discussion consistent with the terminology used in the

consultation paper. However, the term that is used in our guidance is

‘responsible manager’ where this paper refers to ‘key person’.

Implementation and review

70 Our recommendation would be implemented by publishing a new regulatory

guide.

71 In CP 113, we proposed that until 31 December 2013, key people would not

need relevant qualifications but must have five years relevant experience in

the credit industry over the past seven years. We proposed that, after this

time, credit licensees and licence applicants must have key people who have

the necessary experience and qualifications as described in our guidance.



72 We have revised the position proposed in CP 113. Until 30 June 2014, key

people in credit assistance businesses (such as mortgage broking businesses)

do not need relevant qualifications but must have at least two years relevant

experience in the credit industry. Until 30 June 2014, key people of lenders

must have at least five years relevant experience in the credit industry if they

do not have relevant qualifications. From 1 July 2014, credit licensees and

licence applicants must have key people who have the necessary experience

and qualifications. We think this distinction is necessary because key people

of lenders have greater responsibilities than those in credit assistance

businesses, in terms of responsible lending and compliance burdens—for

example, pre-contract and contractual disclosure, management of ongoing

disclosure, account management and statements, handling of hardship

applications, debt collection, and enforcement of securities and guarantees.



C Issue 2: Qualification and experience requirements for key people of mortgage broking businesses

73 This section considers options for the qualifications and experience that

ASIC should require of key people in mortgage broking businesses.


74 Similar to the problem discussed above in relation to organisational

competence for credit businesses generally, the National Credit Act requires

key people involved in mortgage broking businesses to meet licence

obligations, including training and competence requirements. There is no

guidance in the National Credit Act on what this means, so ASIC has to set

standards and provide guidance to avoid the problem of people not knowing

what they have to do in order to comply with their obligations under the law.


75 Option 1: Key people involved in mortgage broking should hold at least a

Certificate IV in Financial Services (Finance/Mortgage Broking) and have

two years problem-free experience.

Option 2: Key people involved in mortgage broking should be subject to the

same requirements as key people not involved in mortgage broking—that is,

to hold at least a Certificate IV level industry-specific qualification or a more

general higher level qualification relevant to their role.

Option 1: Key people involved in mortgage broking should hold at least a Certificate IV in Financial Services (Finance/ Mortgage Broking) and have two years problem-free experience

76 Under this option, all key people would need at least a Certificate IV in

Financial Services (Finance/Mortgage Broking), rather than any other

qualification, and two years problem-free experience.

77 We proposed this because the Certificate IV in Financial Services

(Finance/Mortgage Broking) is a well-recognised qualification that is

specifically relevant to the mortgage broking industry. It meets nationally

endorsed industry standards under the Australian Qualifications Framework.



We think this qualification is an appropriate requirement for the key people

of mortgage brokers because:

(a) it is the qualification that directors of finance brokers in Western

Australia have had to complete in order to be licensed; and

(b) it is also the qualification required for mortgage brokers to gain

membership to the Mortgage & Finance Association of Australia

(MFAA), whose membership includes approximately 75% of all

mortgage brokers, suggesting that this qualification is attainable and an

appropriate prerequisite for the mortgage broking industry.

78 This option should not increase compliance costs markedly for most existing

mortgage broking businesses, as the Certificate IV in Financial Services

(Finance/Mortgage Broking) is already widely held by mortgage brokers in

the mortgage broking industry.

79 Small businesses that are not currently members of any mortgage or finance

associations and that have not chosen to gain this qualification will be the

most affected by this option. We note, however, that there are a variety of

options for obtaining the qualification via distance learning, in intensive

workshop courses over a few days, or by lecture over a period of half a year.

All these options are widely available through registered training

organisations throughout Australia and so giving people up until 30 June

2014 to obtain the qualification should not be considered overly difficult or

burdensome. In response to CP 113, a number of small businesses and

representative bodies involved in the mortgage broking industry commented

that the time frame provided was actually far longer than necessary to obtain

a Certificate IV in Financial Services (Finance/Mortgage Broking), as the

qualification can be obtained in a few days if an intensive workshop is

attended. Requiring this qualification will lift the standard of knowledge

required to be demonstrated in order to run a mortgage broking business,

which can only have benefits for the quality of service provided by the

industry, in turn benefiting consumers.

Option 2: Key people involved in mortgage broking should be subject to the same requirements as key people not involved in mortgage broking

80 This option would allow key people involved in mortgage broking to meet

the competency requirements through the same qualifications as for credit

businesses (i.e. at least a Certificate IV level industry-specific qualification

or a more general higher level qualification relevant to their role) rather than

a mortgage broking-specific qualification (i.e. a Certificate IV in Financial

Services (Finance/Mortgage Broking)).

81 This option would simplify compliance for industry (compared with

Option 1). In response to CP 113, a few submissions put forward the view that



the mortgage broking qualification was not necessarily relevant to key people

who did not interface with clients, so it would be more appropriate to accept

other qualifications for key people of mortgage broking businesses, instead of

limiting it to a Certificate IV in Financial Services (Finance/Mortgage

Broking). Their view was that if a person was a loan writer, they ought to need

the mortgage broking qualification; however, if they were a manager who did

not deal directly with clients, it was unnecessary for that manager to

specifically have a mortgage broking qualification.

82 However, this option would mean that key people who have responsibility

for managing the credit activities of the business and who look after

representatives engaging in mortgage broking activities would not

necessarily understand the minimum knowledge requirements expected from

their representatives. It is difficult to see how a key person can carry out

their duties overseeing the provision of mortgage broking activities if they

do not have this knowledge base.

Recommendation

83 We recommend Option 1. We recommend that key people involved in

mortgage broking hold at least a Certificate IV in Financial Services

(Finance/Mortgage Broking) and have at least two years problem-free

experience.

Consultation

84 The majority of submissions received in response to CP 113 were strongly in

favour of this, although some submissions distinguished between a key

person who writes loans, and one who only manages brokers (arguing that

such managers should not need the particular qualification as their role does

not interface with clients).

Implementation and review

85 In consultation, the MFAA expressed some concern about the lack of

representative positions available to people wishing to qualify as key people,

to meet the requirement for two years problem-free experience, as the

market is dominated by mortgage brokers operating as sole traders.

86 We acknowledge this concern, while still being committed to a model which

requires proper work experience working as an employee of a credit licensee

before being able to operate in a mortgage broking business as a key person.

We have revised our position so that, until 30 June 2012, mentoring



arrangements that accord with the MFAA mentoring guidelines, or other

approved guidelines, may be counted towards experience to allow for people

currently undergoing mentoring to qualify as key people. We are allowing a

two-year transition period such that a person is deemed to have two years

experience in mortgage broking if they complete their mentoring by 1 July

2012. After this time, all potential mortgage broker key people will need two

years of experience working under a credit licensee providing mortgage

broking services before they meet the necessary experience requirements to

be a key person themselves.



D Issue 3: Ongoing training for key people and representatives acting as mortgage brokers

87 This section considers options for ASIC policy on requiring ongoing training

for key people of credit licensees and representatives acting as mortgage

brokers.


88 As mentioned earlier, a credit licensee is required to maintain the

competence to engage in the credit activities authorised by the licence.

89 CPD is essential for the ongoing maintenance of organisational competence.

It is important for a credit licensee’s key people to keep up-to-date with

industry and regulatory developments in order to provide sound leadership

for their organisations.

90 There is no guidance in the National Credit Act on what organisational

competence or adequate representative training means, so ASIC has to set

standards and provide guidance to avoid the problem of people not knowing

what they have to do in order to comply with their obligations under the law.


91 Possible options for CPD requirements for key people are:

Option 1: Key people and representatives acting as mortgage brokers should

undertake at least 20 hours of CPD per year.

Option 2: Key people and representatives acting as mortgage brokers should

undertake at least 10 hours of CPD per year.

Option 3: Credit licensees should determine how much CPD their key

people and representatives acting as mortgage brokers should undertake

annually.

Option 1: Key people and representatives acting as mortgage brokers should undertake at least 20 hours of CPD per year

92 Under this option, to maintain competence, all businesses would have to

ensure their key people and representatives acting as mortgage brokers

undertake a minimum of 20 hours of CPD per year. This refreshing of



knowledge for key people within credit businesses is critical to providing

consumers with up-to-date and current information. The credit industry is a

rapidly evolving sector and, with the new national regime being

implemented where none existed previously, it is likely that there will be a

period of adjustment for both the regulated and the regulator, including a

period when adjustments to the method of regulation are made to ensure a

smooth transition. As such, CPD is even more critical than in other

industries as it should ensure that participants are abreast of any adjustments

being made to the regime during this period. Such adjustments are likely to

take place as a series of events and the most logical way of ensuring

participants are aware of them all is to require participants to constantly

update their knowledge through CPD requirements.

93 While CPD is well established in certain areas of the credit industry, such as

mortgage broking where the main industry bodies require their members to

engage in 20 hours of CPD per year, in other areas, which have not been

subject to such requirements before, there will be little existing training

available of relevance to certain key people in the credit industry (e.g. debt

collectors, although they currently have a 12-month licensing exemption).

Training course providers and professional associations will incur some

initial costs in developing appropriate training to fill this gap. However, this

will be an ongoing avenue for generating revenue and, as such, should more

than recoup any sunk costs involved in developing these courses.

94 We note that, generally, the CPD requirement in other professions varies

between 10 and 30 hours of CPD per year. Small business expressed some

concern that this proposal was onerous and irrelevant to their needs. Some

noted that 20 hours exceeds what is required from other professionals such

as lawyers (who are required to complete 10 hours of CPD per year). They

were also concerned that the proposal was predicated on the resources

available to big business and a geographic location that makes attendance at

various forums possible. They asserted the proposal was biased against small

businesses in remote areas.

Option 2: Key people and representatives acting as mortgage brokers should undertake at least 10 hours of CPD per year

95 Some submissions thought that, while CPD was valuable, consideration

should be given to reducing the number of hours of CPD required if the

licensee was a member of a professional organisation, with the qualification

that ASIC would need to have some oversight over who these professional

associations were.

96 As noted in paragraph 94, it appears the average level of CPD required in

other industries is between 10 and 30 hours. We would therefore not

consider reducing the requirement below 10 hours per year as it is a



minimum accepted standard across professions required to maintain current

knowledge necessary to be competent. However, we are not convinced that it

is appropriate to reduce the number of hours of CPD required on the basis

that a licensee is a member of a professional organisation. We think that this

option would enable some key people to appear to meet the CPD

requirement when in fact they were not actually meeting the intention behind

such a concession, as just because a professional organisation sends up-to-

date material on the credit industry to its members, this does not necessarily

mean that the member has read and assimilated this information.

Option 3: Credit licensees should determine how much CPD their key people and representatives acting as mortgage brokers should undertake annually

97 This option would allow credit licensees to determine their own needs in

relation to ongoing training. It is noted that there is no equivalent

requirement for responsible managers under the financial services regime.

This option would have lower compliance costs for industry compared with

Options 1 and 2.

98 However, the financial services regime is different to the credit regime and a

different approach is being taken to setting the policies that apply in the

credit regime. This is because credit products affect a larger and greater

range of consumers and capture a larger part of the unsophisticated

consumer market than financial products.

99 We are of the view that it is important to ensure that key people and

representatives acting as mortgage brokers take adequate measures to refresh

their knowledge of current issues within the credit industry relevant to their

business. While we expect that there would be some competitive pressures

for key people and representatives to undertake some activities to ensure that

they maintain up-to-date industry knowledge, there is no guarantee that this

would be directed towards professional development or otherwise in

furtherance of the licence obligation to maintain ongoing competence. A

lack of ongoing professional development would result in lower ongoing

benefits for consumers, and could even result in some harm to consumers if

licensees do not avail themselves of up-to-date knowledge and practices.

Recommendation

100 We recommend Option 1. Key people and mortgage brokers should

undertake at least 20 hours of CPD per year. At least 20 hours of CPD

strikes an appropriate balance, representing a significant number of hours per

year that is sufficient for key people to accumulate sufficient knowledge

about new developments in the credit industry without being too onerous.



Consultation

101 In response to this proposal in CP 113, a majority of submissions

(particularly from mortgage brokers) indicated they were comfortable. Some

representative bodies for small businesses were concerned that 20 hours of

CPD was too onerous, and were concerned that it would be practically very

difficult for those people located in remote areas to access appropriate

activities that could count towards CPD.

102 As a result of the feedback from CP 113, we propose that the guidance will

provide a greater range of activities that may count towards CPD so that

those businesses in rural and remote areas will have a greater ability to

access appropriate training opportunities. In CP 113, we proposed that the

20 hours of CPD could consist of a combination of attending seminars,

preparing and publishing technical articles, providing training and other

relevant activities. We propose the guidance be extended to include viewing

DVDs of recent professional seminars or conferences and the completion of

online tutorials and/or quizzes on recent regulatory, technical or professional

developments in the industry.

Implementation

103 This option would be implemented by publishing guidance that states that all

key people and mortgage brokers should undertake at least 20 hours of CPD

per year.



E Issue 4: Representative training

104 This section considers options for ensuring that representatives undertake

adequate training generally.


105 As well as a credit licensee’s obligation to maintain the competence to

engage in the credit activities authorised by the licence, the licensee is also

required to ensure that their representatives are adequately trained, and are

competent, to engage in the credit activities authorised by the licence.

106 There is no guidance in the National Credit Act on what this means, so ASIC

has to set standards and provide guidance to avoid the problem of people not

knowing what they have to do in order to comply with their obligations

under the law.

107 In response to these proposals in CP 113, some submissions raised concerns

that this was not a consistent approach and that mortgage brokers were being

singled out unfairly for special treatment. Others were concerned that ASIC

was not prescribing minimum Certificate IV qualifications for all credit

representatives.


108 Possible options for assessing representative training are:

Option 1: Allow licensees to determine what training is appropriate for their

representatives—in mortgage broking, a minimum of a Certificate IV in

Financial Services (Finance/Mortgage Broking).

Option 2: Set a minimum level of qualification/training that all

representatives are required to undergo.

Option 1: Allow licensees to determine what training is appropriate for their representatives—in mortgage broking, a minimum of a Certificate IV in Financial Services (Finance/ Mortgage Broking)


109 Under this option, representatives are not required to undertake specific

training. Instead, licensees would need to ensure that their representatives



were adequately trained and competent to engage in the credit activities

authorised by the licence. Licensees would be responsible for determining

appropriate initial and ongoing training for their representatives, and to

embed this in their recruitment and training systems. Licensees would be

expected to document their recruitment and training policies and procedures.

110 The exception would be for mortgage brokers, who would be required to

have at least a Certificate IV in Financial Services (Finance/Mortgage

Broking). This exception would be made because it fits with a clear and

already existing benchmark in the mortgage broking industry. With other

sections of the industry, such benchmarks are not apparent.

Impact on industry

111 This would give industry the greatest flexibility to choose the most

appropriate training for its representatives. We think this would be beneficial

to the credit industry as it comprises a very diverse group of businesses, for

which only mortgage broking has a clear benchmark qualification that could

be required from its key people as a sensible and appropriate qualification.

112 There is a diverse range of businesses of every size and description in the

credit industry, as well as a large range of different business models. The

diversity of the credit industry means that people working in the industry

have different training needs. Consequently, a flexible approach to

representative training and competence, and not requiring specific

qualifications from representatives, would allow individual licensees to best

target training for their representatives and reduce costs that would arise

from requiring unproductive or inappropriate training to be undertaken.

113 Also, for many parts of the credit industry, highly relevant industry-specific

courses may not yet exist.

114 In CP 113, we made an exception to this rule for mortgage broker

representatives. We proposed that representatives who work as mortgage

brokers in a mortgage broking business complete at least a Certificate IV in

Financial Services (Finance/Mortgage Broking). We thought this was an

appropriate exception to our general representative training approach

because of existing educational benchmarks in the mortgage broking

industry. While there may be other areas of the credit industry where

representatives ought to be required to have a particular qualification, at the

current time, this is only apparent in the mortgage broking industry.

115 The requirement that mortgage brokers should have a minimum of a

Certificate IV in Financial Services (Finance/Mortgage Broking) will impact

some AFS licensees, such as financial advisers who meet Regulatory

Guide 146 Licensing: Training of financial product advisers (RG 146)

requirements. Where a financial adviser provides financial advice to a client

that is credit assistance in relation to a credit product secured by real property,



they will be caught by the mortgage broking training requirements so that, in

addition to meeting the training requirements in RG 146, they will be required

to obtain the Certificate IV in Financial Services (Finance/Mortgage Broking).

116 This is appropriate because financial planning qualifications do not cover the

information relating to mortgages that is requisite knowledge for a

Certificate IV in Financial Services (Finance/Mortgage Broking). Financial

advisers meeting RG 146 requirements are able to get credit for some of

their RG 146 studies that can be counted towards the Certificate IV in

Financial Services (Finance/Mortgage Broking). Where a financial planner

has a diploma in Financial Planning, this means that they will get credit for

four units and will need an additional eight units to receive a Certificate IV

in Financial Services (Finance/Mortgage Broking).

Impact on consumers

117 By giving industry flexibility to choose the most appropriate training for

their representatives, this should allow licensees to ensure their

representatives have the most suitable training to allow them to carry out

their roles effectively. This should in turn ensure that consumers interacting

with the representatives of licensees will be dealing with representatives who

have undergone tailored training for their roles.

118 There is a risk that not requiring representatives (other than mortgage

brokers) to undergo specific training will result in some licensees neglecting

their responsibility to set appropriate training. If this occurs, some

representatives will not be providing adequate services to consumers,

resulting in general detriment to the consumer.

Option 2: Set a minimum level of qualification/training that all representatives are required to undergo


119 Under this option, all representatives would be required to obtain a credit

industry-specific qualification, at least at the Certificate IV level.

120 This would ensure that all representatives have a minimum qualification

relevant to their work. As credit-specific qualifications contain units

covering the legislation/compliance with the credit regime, this would ensure

all representatives have greater familiarity with the requirements of the

credit regime they work in.

Impact on industry

121 The diversity of representative roles in the credit industry is large and, since

there have not been requirements in the past for representatives to have

particular training, there are some sections of the industry for which no



appropriate courses at the Certificate IV level currently exist. Consequently,

industry would need to develop suitable courses to fill this gap, or the result

would be that representatives would have no choice but to take courses not

entirely relevant to their roles.

122 We also note that the costs for large businesses in training large numbers of

representatives would be a significant impost.

Recommendation

123 We recommend Option 1. We believe that credit licensees (in particular,

their key people) are in the best position to evaluate the training needs of

their representatives and implement appropriate measures to ensure their

representatives are competent.

124 We will not mandate particular educational requirements for credit

representatives but we expect licensees to ensure that their representatives are

suitably qualified to perform the role that they are employed to perform. In the

case of mortgage brokers, this should be a minimum of a Certificate IV in

Financial Services (Finance/Mortgage Broking) as this is currently the

benchmark standard for the industry.

Consultation

125 In light of some of the concerns raised in response to CP 113, we have modified

the proposal so that our guidance states that, while we will not mandate

particular educational requirements for credit representatives, we expect

licensees to ensure that their representatives are suitably qualified to perform the

role that they are employed to perform, and note that, in the case of mortgage

brokers, representatives should have a minimum of a Certificate IV in Financial

Services (Finance/Mortgage Broking). This restatement draws our approach to

mortgage broker representatives closer to a general principle for all credit

licensees, rather than highlighting the mortgage broking industry as being

subject to different treatment as proposed in CP 113.



F Issue 5: Training requirements for representatives of mortgage brokers who meet ASIC’s Tier 1 training requirements

126 This section considers the options for ensuring that representatives of

mortgage brokers who meet ASIC’s Tier 1 training requirements (i.e.

financial planners) undertake adequate training.


127 Financial planners are currently required to meet the Tier 1 training

requirements in RG 146. This means that a financial planner must undertake

specific training that covers sets of knowledge and skills requirements that

vary depending on the adviser’s activities. Suitable training courses are listed

on the ASIC Training Register.

128 However, financial planners and financial advisers often provide advice

about their client’s home loan in the context of broader financial advice.

Where this advice amounts to credit assistance in relation to credit products

secured by real property, they are also required to comply with the training

and competence requirements under the National Credit Act.

129 We are seeking to streamline these requirements to manage any conflicts and

duplication between the two regimes.

Options

130 Option 1: Financial planners engaging in mortgage broking must have the

Certificate IV in mortgage broking qualification. However, we will work

with industry bodies to determine appropriate exemptions from units to

recognise the qualifications of those individuals who meet Tier 1 training

requirements in RG 146.

Option 2: Representatives of credit licensees who meet Tier 1 training

requirements in RG 146 and provide advice about mortgages incidentally to

providing financial product advice will be exempt from the requirement to

hold a Certificate IV in Financial Services (Finance/Mortgage Broking).



Impact analysis

Option 1: Financial planners engaging in mortgage broking must have the Certificate IV in mortgage broking qualification

131 Under this option, regardless of existing qualifications held by a financial

planner, if a planner engaged in mortgage broking, they would have to ensure

they obtained a Certificate IV in mortgage broking. The Financial Services

Training Package, of which the Certificate IV in Financial Services (Finance/

Mortgage Broking) is a part, is designed to enable courses in similar streams to

be credited with units that overlap. Someone who holds a diploma in Financial

Planning will automatically receive credit for four units and will need to

complete an additional eight units to also receive a Certificate IV in Financial

Services (Finance/Mortgage Broking). They will therefore be able to count

some of their existing qualifications towards the Certificate IV, although they

will not be able to automatically gain the Certificate IV without further study.

132 A brief review of courses for the Certificate IV in Financial Services

(Finance/Mortgage Broking) undertaken by ASIC appears to indicate course

costs for completing the whole course range from approximately $600 for self-

paced study online up to $1300 for face-to-face intensive workshops that

would cover the course content in three days. Consequently, depending upon

what mode of study was undertaken and the provider that was approached, the

costs needed to be incurred to obtain the extra units would vary from the low

hundreds of dollars to the high hundreds. The additional time required to

complete these units would also vary between a day or so and a few months to

complete the subjects part-time or at self-paced study. The cost of completing

20 hours of CPD per year can vary greatly, depending on which options are

chosen to fulfil the requirements. Viewing DVDs and writing articles for trade

journals would cost significantly less than attending seminars or conferences.

If a person is a member of an industry association, there are sometimes free

options that the industry association puts on for their members.

133 This option will provide benefits for consumers, as it will ensure that any

person engaging in mortgage broking services has undergone specific

training to cover details on mortgages that are not covered in the Financial

Planning diploma.

Option 2: Representatives of credit licensees who meet Tier 1 training requirements in RG 146 and provide advice about mortgages incidentally to providing financial product advice will be exempt from the requirement to hold a Certificate IV in Financial Services (Finance/Mortgage Broking)

134 This option would mean that financial planners providing advice about

mortgages incidentally to providing financial planning advice would be



exempt from the training requirements, so that they would be allowed to

provide a mortgage broking service without specific mortgage broking

training, provided this only comprised a small part of their business.

135 This option assumes that the training undergone by a financial planner is

sufficient to allow a financial planner to also provide mortgage broking services.

While mortgage products are financial in nature, and it is arguable that the

training undergone by financial planners requires them to consider many more

complex financial situations than those concerning the implications of a

mortgage, we are of the view that this is an oversimplification of the services

provided by a financial planner compared with those provided by a mortgage

broker. While a financial planner does need to complete extensive training in

financial studies in order to become a financial planner, this training does not

include extensive training on the features and details of mortgages themselves,

or the skills required of mortgage brokers. While it is possible for financial

advisers to discuss mortgages in a general way with clients, which is sufficiently

informed by their financial planner training, where a financial planner starts

performing mortgage broking activities, it is appropriate that they should meet

the same requirements that are required from people who engage exclusively in

mortgage broking activities.

136 We do not think it is appropriate to exempt financial planners from this

requirement where they only provide advice about mortgages incidentally to

providing financial advice. This could expose consumers to inadequate

mortgage broking services from financial planners, despite the rest of the

mortgage broking population requiring mortgage-specific training.

Recommendation

137 We recommend Option 1. We will work with industry bodies to determine

appropriate exemptions from units to recognise the qualifications of those

individuals who meet Tier 1 training requirements in RG 146; however, as a

general principle, it is appropriate that those financial planners engaging in

mortgage broking should be required to have a Certificate IV in Financial

Services (Finance/Mortgage Broking).

Consultation

138 In CP 113, we proposed that representatives of credit licensees who meet

Tier 1 training requirements in RG 146 and provide advice about mortgages

incidentally to providing financial product advice will be exempt from the

requirement to hold a Certificate IV in Financial Services (Finance/Mortgage

Broking).



139 We proposed this because financial planners and financial advisers often

provide advice about their client’s home loan in the context of broader

financial advice and would usually have financial services Tier 1 qualifications

in accordance with RG 146. We proposed that where a financial planner or

financial adviser suggests a consumer obtain a new loan (or switch loans), or

helps them to do so, that person should hold a Certificate IV in Financial

Services (Finance/Mortgage Broking) in addition to their other financial

services qualifications and also meet the 20 hours ongoing training requirement.

However, where the financial planner or financial adviser simply refers to a

consumer’s current lending arrangements as part of an overall financial plan,

we think that it may be appropriate for the financial planner or financial

adviser to be exempt from the specific mortgage broking training requirements.

140 Submissions were divided between financial planners who thought they ought

to be completely exempt from the requirement to hold a Certificate IV in

Financial Services (Finance/Mortgage Broking) because the Tier 1 training

requirement, which results in diploma level qualifications, generally is more

comprehensive than a Certificate IV qualification, and mortgage brokers and

registered training organisations who thought a financial planner providing

any advice on mortgages ought to have a Certificate IV qualification.

141 We had several meetings with the Financial Planning Association of

Australia (FPA) to discuss the various problems raised for financial planners

with our proposals.

Implementation

142 Our recommendation will be implemented by the publication of guidance

stating that all mortgage broking representatives who provide mortgage

broking services should hold a Certificate IV in Financial Services

(Finance/Mortgage Broking). However, we will work with industry bodies to

determine appropriate exemption from units in the Certificate IV in Financial

Services (Finance/Mortgage Broking) to recognise their existing qualifications.

143 As this regime is new, we plan to learn from the feedback given to us during

the first few years after implementation. Accordingly, we will continue to

monitor our training and competence requirements and revise our guidance

as appropriate.

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