Ineffective reference checking was a key issue in the financial services industry and an area ASIC intended to work on improving in the next 12 months, a senior manager with the corporate regulator said yesterday.
ASIC senior manager Nick Coates told the Association of Financial Advisers 2012 National Roadshow in Sydney that eliminating 'bad apples' from the industry was a high priority for the regulator.
Coates said following ASIC's ongoing risk surveillance of the industry, it noted a significant variation in how licensees and dealer groups were processing reference checks on newly-appointed staff.
"Some licensees admitted to us that on occasion they appointed people on only limited or no information," he said.
"The inconsistencies in reference checking are a concern for us. So we've commenced work on a project called 'bad apples' and it's looking at processes around reference checking."
The project aims to implement measures to help remove 'bad apples' from the industry and stop advisers, who commonly exhibit bad conduct, moving between licensees.
"Reference checking is a key issue. It's a very practical way of identifying and removing bad apples, ideally improving their conduct or if worst comes to worst, forcing them out of the industry," Coates said.
In 2007, ASIC co-published a handbook on reference checking for Australia's financial services industry.
But after discussion with licensees, the regulator found most were aware of the handbook but many had not implemented its recommendations.
At the time, licensees cited litigation against unfavourable reference or inability to find the right person at the employee's pervious company as constraints.
"We want to work to see if we can come up with a way of making reference checking easier. In the near future we'd like to put out a consultation paper. In the meantime we'd urge licensees to review your current approach," Coates said.
