Prior to the commencement of the new credit regime, advice or assistance to consumers in relation to credit issues was unregulated. That is, that until 1 July 2010, advice to a client about their mortgage, personal loan or credit card repayment, for example, did not come within the scope of regulated advice.
The Australian financial services licensing regime was not directly applicable to your core business, but acknowledging that it may apply, depending on the individual circumstances of a particular client, in December 2003 ASIC granted Class Order Relief to financial counselling agencies. The current updated version is ASIC Corporations (Financial Counselling Agencies) Instrument 2017/792. This exemption allows the exempt service (the financial counselling agency) to provide financial advice in relation to a limited range of financial products such as deposits, general insurance and superannuation.
This Relief acknowledged that for the clients your agency assists, financial product advice would, in most cases, be an incidental part of the broader financial counselling service which revolves around assistance with credit and debt issues. However, under the new laws, your core business is now squarely caught by the licensing regime. However, in the Regulations to the new National Consumer Credit Protection Act 2009, financial counselling agencies that engage in credit activity as part of a financial counselling service are exempt from the requirement to hold a credit licence, subject to conditions.
The key conditions relate to remuneration and training:
- no fees or charges (however described) are payable by or on behalf of the client in relation to the credit activity (or financial service) or any other aspect of the financial counselling service; and
- no remuneration (whether by way of commission or otherwise) is payable to, or on behalf of, the financial counselling agency, their representatives or other associates by any person in relation to any action by, or on behalf of, the client arising from:
- engaging in the credit activity (or financial service); or
- any other aspect of the provision of the financial counselling service; and
- a requirement that an agency ensures that each person who provides the credit activity (or financial service) has undertaken appropriate training and has adequate skills and knowledge to provide the service.
The policy objective of these conditions is to ensure that financial counselling services are provided at no cost to consumers and to preserve the independent and robust advocacy that is a feature of financial counselling in Australia. The training condition is to ensure that financial counsellors employed by your service are properly trained to deliver the financial counselling service to consumers. This includes an understanding of the regulatory landscape in which they deliver their services.
ASIC is aware that many agencies are contemplating or have engaged in ‘partnerships’ with industry participants and other external providers to generate income streams for the agency.
For this reason, we would like to remind all agencies of the terms of the exemptions under which your service operates and to alert you to the fact that if your service cannot comply with the terms of your exemption, that you may wish to obtain a license or amend your business model to ensure that you do comply.