ASIC implementation of the National Credit Act: Training and competence of credit licensees
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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
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.
© Australian Securities and Investments Commission December 2009 Page 2Regulation Impact Statement: ASIC implementation of the National Credit Act: Training and competence of credit licensees
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
© Australian Securities and Investments Commission December 2009 Page 3Regulation Impact Statement: ASIC implementation of the National Credit Act: Training and competence of credit licensees
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
© Australian Securities and Investments Commission December 2009 Page 4Regulation Impact Statement: ASIC implementation of the National Credit Act: Training and competence of credit licensees
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)).
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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
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(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
© Australian Securities and Investments Commission December 2009 Page 8Regulation Impact Statement: ASIC implementation of the National Credit Act: Training and competence of credit licensees
(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.
© Australian Securities and Investments Commission December 2009 Page 9Regulation Impact Statement: ASIC implementation of the National Credit Act: Training and competence of credit licensees
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.
Assessing the problem
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
© Australian Securities and Investments Commission December 2009 Page 10Regulation Impact Statement: ASIC implementation of the National Credit Act: Training and competence of credit licensees
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:
© Australian Securities and Investments Commission December 2009 Page 11Regulation Impact Statement: ASIC implementation of the National Credit Act: Training and competence of credit licensees
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
© Australian Securities and Investments Commission December 2009 Page 12Regulation Impact Statement: ASIC implementation of the National Credit Act: Training and competence of credit licensees
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.
© Australian Securities and Investments Commission December 2009 Page 13Regulation Impact Statement: ASIC implementation of the National Credit Act: Training and competence of credit licensees
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.
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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 Cost of using credit service providers like
providers and credit assistance providers mortgage brokers likely to increase due to
required to familiarise themselves with industry passing on costs of training key
clearly defined subject matter in order to be people (-1)
key people (+3)
Industry Increased certainty about what training Initial costs of training key people
needs to be done to meet ASIC’s (approximately $600–$1300 per key
requirements (+2) person), and ongoing costs of CPD
(recurring yearly expense) (-2)
Training course providers and industry and
professional associations will benefit from
increased demand for training (+3)
Government Reducing risks that consumers are Transitional and ongoing costs of
channelled into inappropriate loans, which developing and enforcing competence
could potentially build up to another GFC requirements for credit licensees (-1)
(+2)
Sub-rating +10 -4
Overall rating +6
Table 2: Rating scale for individual impacts
+3 +2 +1 0 -1 -2 -3
Large Moderate Small No Small cost/ Moderate Large cost/
benefit/ benefit/ benefit/ substantial disadvantage cost/ disadvantage
advantage advantage advantage change from compared to disadvantage compared to
compared to compared to compared to ‘do nothing’ ‘do nothing’ compared to ‘do nothing’
‘do nothing’ ‘do nothing’ ‘do nothing’ ‘do nothing’
Option 2: Allow key people who have several years of
experience but no qualifications, otherwise as per Option 1
Description of option
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
© Australian Securities and Investments Commission December 2009 Page 15Regulation Impact Statement: ASIC implementation of the National Credit Act: Training and competence of credit licensees
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’.
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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
Description of option
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
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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
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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
Description of option
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
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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
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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.
© Australian Securities and Investments Commission December 2009 Page 21Regulation Impact Statement: ASIC implementation of the National Credit Act: Training and competence of credit licensees
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.
© Australian Securities and Investments Commission December 2009 Page 22Regulation Impact Statement: ASIC implementation of the National Credit Act: Training and competence of credit licensees
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.
Assessing the problem
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.
Options and impact analysis
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.
© Australian Securities and Investments Commission December 2009 Page 23Regulation Impact Statement: ASIC implementation of the National Credit Act: Training and competence of credit licensees
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
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