Guidance for small credit businesses

From 1 July 2010, people who engage in credit activities in Australia can apply to the Australian Securities and Investments Commission (ASIC) for an Australian credit licence under the National Consumer Credit Protection Act 2009 (National Credit Act).

The national credit regime replaces existing state and territory-based regulation of consumer credit. Products regulated by ASIC under the new regime include home loans, personal loans, credit cards, consumer leases, overdrafts and line of credit accounts, among other products and services.

This information sheet is for you if you run a small credit or finance broking business (i.e. a business with only a few employees). It explains what you need to do before you apply for a credit licence and how to apply.

It also includes some suggestions and examples to help you think about how you might meet your obligations as a credit licensee.

Before you apply for a credit licence

Step 1: Find out about the licensing process

Read Regulatory Guide 204 Applying for and varying a credit licence (RG 204). This guide explains what you will be asked when you apply for a credit licence and what you need to get ready before you start to fill out your application.

Step 2: Think about what credit activities you engage in

You will need to apply for authorisations on your credit licence that are appropriate for your business. Small credit businesses or finance brokers will generally need the authorisation to ‘engage in credit activities other than as a credit provider or lessor’.

This authorisation covers a range of credit activities. You will not necessarily engage in all of the credit activities covered by the authorisation on your licence.

Step 3: Become a member of an ASIC-approved external dispute resolution (EDR) scheme

When you apply for a credit licence, you must be a member of an EDR scheme approved by ASIC. The schemes are:

  • Financial Ombudsman Service (www.fos.org.au) or phone 1300 780 808), or

  • Credit and Investments Ombudsman (www.cio.org.au) or phone 1800 138 422).

Become a member now to save time later.

Step 4: Do background checks on the people involved in your business

You will need to attach to your application form copies of a criminal history check, a bankruptcy check and a credit history check for each of the people who are involved in managing your credit business. If you have a company, these people are likely to be your directors and company secretary. You might also include a senior employee if they are involved in making substantial decisions about how your business is run.

As these checks can take a while to complete, we suggest that you apply for them about six weeks before you plan to lodge your application form.

For information about how to apply for these background checks, see Regulatory Guide 204 Applying for and varying a credit licence (RG 204). 

Step 5: Update your details on other ASIC registers

Information about you or your company may already be on other registers kept by ASIC. For example, if you have a company, the names and addresses of your directors and company secretary are kept on the companies register. If you are a financial services licensee, your details will be on that register.

Some of these details will be pre-filled in the online application form when you apply for a credit licence. You need to make sure that the information in these registers is up-to-date before you start your application. If it isn’t, you won’t be able to complete your application (though you can save it and come back to it later).

If you need to update any details, lodge a Form 484 (for company details) or FS20 (for AFS licensee details) before you start your application. 

Step 6: Prepare your arrangements and systems

As a credit licensee, you will have obligations that relate to how you conduct your business. These are called the ‘general conduct obligations’.

These obligations broadly require you to have arrangements and systems to make sure:

  • you comply with the credit legislation and conditions on your licence,

  • your internal systems are adequate for you to properly operate your credit business,

  • the people involved in your credit business are competent and comply with the credit legislation, and

  • your resources are adequate for you to properly operate your credit business.

You need to work out what arrangements and systems you need to operate your business properly so that you can engage in credit activities in a way that complies with all your obligations.

You need to have your arrangements and systems in place, and written plans that document them, when you apply for a credit licence. If you don’t, you will not be granted a licence.

As your business is small, you are unlikely to need complex arrangements or systems. Your written plans may be quite short, and may largely rely on checklists.

We have included some suggestions and examples at the end of this information sheet to help you think about how you might meet your obligations.

How to apply for a credit licence

After you’ve completed the six steps above, you’ll be all set to apply for a credit licence. You can apply online:

Where can I get more information?

Suggestions for complying with your obligations

The following suggestions are not intended to be a complete list of all matters you need to consider. They are only a guide to some common matters we expect to be relevant to small credit businesses and finance brokers, with examples of how the written plans could be set out.

You should read Regulatory Guide 205 Credit licensing: General conduct obligations (RG 205). The appendix to that guide has some questions that might help you to design and test your arrangements and systems.

Looking at your business

  • When deciding what arrangements and systems to put in place, think about the particular features of your credit business, such as:

    • the types of credit contracts or consumer leases you suggest to your clients, and help your clients to obtain,

    • the number of people (probably employees) who engage in credit activities on your behalf,

    • where these people are located (e.g. whether they are based away from your direct supervision), and

    • the way you contact your clients (e.g. face-to-face contact or by phone or internet).

  • Work out what requirements under the credit legislation (or particular risks or costs) you should deal with in your arrangements and systems to make sure that you operate your business properly.

  • Decide who will be responsible for monitoring compliance by you or your representatives with the credit legislation and licence conditions. In a small business, this will usually be one or more of the directors, but it could be a senior employee.

Promoting compliance by your staff

  • Develop practical checklists for the major day-to-day tasks that set out steps that must be taken and timeframes for taking those steps.

  • Ensure that staff read the written plans of your compliance arrangements before they start to engage in credit activities on your behalf.

  • Run an induction program for all new staff, which includes training on what your obligations are and your arrangements for complying with them.

  • Run internal training sessions on an ongoing basis to ensure your staff are kept up-to-date with your obligations and compliance arrangements, particularly when changes have been made.

  • Test whether your employees understand your obligations and compliance arrangements, and ask them whether they think the arrangements are appropriate or could be improved.

Monitoring compliance

  • Make regular and/or ad hoc inspections of employees’ work.

  • Set out reporting lines so that all staff are aware of the process for reporting any instances of non-compliance.

  • Specify frequency of reports and meetings about compliance issues, who reports should be given to, and who should attend the meetings.

  • Keep minutes of all compliance-related meetings, copies of audit reports on compliance, and results of reviews of representatives’ conduct.

  • If instances of non-compliance recur, arrange a review by an appropriate person who can make recommendations about whether changes are needed to the compliance arrangements.

Keeping arrangements up-to-date

  • Formally review your compliance arrangements (e.g. every six months or yearly) as well as updating them as required from time to time.

  • If appropriate, engage an external person to conduct an audit of your compliance arrangements and advise whether they are adequate for your business as it develops.

  • Make someone responsible for reviewing instances of non-compliance and making recommendations about whether any changes are needed to the compliance arrangements to prevent a recurrence.

Example 1: Checklist for compliance with credit legislation/licence conditions

A summary checklist can help you keep track of the requirements and obligations. Here is an example of how your checklist could be set out.

Description of major requirementsSection/condition Timeframe Who is responsible for meeting requireemnt in day to day conduct Who is responsible for monitoring compliance 
 

e.g. 1 Keep financial records of credit business that explain:

  • transactions, and
  • financial position.
National Credit Act, s88  

Ongoing

 

 

Director or senior employee

 [Name of director or senior employee]

e.g. 2 Before providing credit assistance for a credit contract:

  • make a preliminary assessment of whether credit contract will be unsuitable
  • make inquiries about and verify consumer’s requirements, objectives and financial situation.
 

National Credit Act, s115–117

 

Within 90 days before assistance day

Representative dealing with consumer  [Name of director or senior employee]

Example 2: Monitoring compliance

Credit licensees are required to lodge with us a compliance certificate on an annual basis: s53, National Credit Act. To comply with this obligation, we expect that you will need to keep records of your monitoring and reporting, including records of reports on compliance and non-compliance. Here is an example of how you might keep track of any instances of non-compliance.

Description of non compliance (including relevant requirement)

Date of non compliancePeople InvolvedHas the situation been rectified  Outcome of action taken

 

   

 

 

Example 3: Training register

One of the obligations on credit licensees is to ensure representatives (e.g. employees and people who are specifically authorised to act on your behalf) are trained and competent to engage in credit activities. A register helps you to keep track of training. Here is an example of how your register could be set out.

Representative

 

Course/development program

 

Date  completed

 

Post training assessment of competence 

 

 

     

Example 4: Risk management plan

You need to identify the most critical risks your business may face (i.e. events that could occur and impact on your business objectives). You need to have systems to control the chance of these events occurring, and the impact of the events if they do occur.

As business risks are dynamic, you need to monitor and review your systems to ensure that you consistently identify and evaluate the risks to your business. A senior person in your business (such as a director or senior employee) can be responsible for monitoring and reviewing your risk management systems, and making sure that people involved in your business are aware of the risks and how to deal with them if they occur (e.g. by reporting to appropriate people at appropriate times).

Here is an example of how your risk management plan might be set out.

Risk (event that will impact on lawful operation of business)   

 

Probability/ impact analysis       

 

Priority      

 

Measures to minimise occurrence/ impact of risk                

Who do staff report occurrence of risk event to    

Risk areas may include:

  • financial risks
  • obligations under the credit legislation
  • obligations under your credit licence
  • governance (e.g. resignation of directors)
  • human resources (e.g. resignation of a key person named on your credit licence)
  • technology and systems
  • business strategy
  • commercial and legal
  • economic and environmental

 

       

Example 5: Checklist for client file

Client ………………………………………

Representative’s name ………………………………………

Service provided: e.g. Suggesting or assisting a consumer to apply for a particular credit contract [name of contract]

Is the representative authorised to provide this service? Yes / No

Description of major requirements 

Yes

 

No  

 

If no, why not?                        

N/A 

Date          

Have you made reasonable inquiries about the consumer's requirements and objectives in relation to the credit contract?  National Credit Act s117 (1)(a).

         

Have you made reasonable inquiries about the consumer's financial situation? National Credit Act s117 (1)(b).

         

Have you taken reasonable steps to verify the consumer's financial situation?

  • [List steps]

National Credit Act s117 (1)(c).

         

Have you made a preliminary assessment of whether the credit contract will be unsuitable for the consumer taking into account:

  • the consumer's requirements and objectives, and
  • the consumer's financial situation?

National Credit Act s116 (1).

         

Has the consumer asked for a copy of the preliminary assessment?

         

Note: There may be additional requirements that you need to monitor or be aware of under the National Consumer Credit Protection Regulations 2010.

This is Information Sheet 97 (INFO 97), reissued in April 2011. Information sheets provide concise guidance on a specific process or compliance issue or an overview of detailed guidance.

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Last updated: 20/10/2014 12:00