ACL Strategy for Lenders & Mortgage Brokers: Own Licence or Credit Representative?11 min read

Introduction

An Australian Credit Licence (ACL) strategy should fit the credit activities a lender or mortgage broker actually performs, not simply whether the business can obtain its own licence. Under the National Consumer Credit Protection Act 2009 (Cth) (‘NCCP Act‘), a person generally cannot engage in a regulated credit activity without an ACL, authorisation as a credit representative, or another applicable exemption.

This article explains how lenders and mortgage brokers can structure their licensing arrangements around their business model, current activities, and growth plans.

Start With the Credit Activities Your Business Will Perform

Lenders & Credit Providers

A lender’s ACL position depends on the regulated credit activities its business performs, not only on whether it advances money. Under Section 6 of the NCCP Act, a business may engage in a credit activity when it is the credit provider under a regulated credit contract, provides credit to which the National Credit Code (‘the Code‘) applies, or performs a credit provider’s obligations or exercises its rights.

The assessment should identify:

• which entity enters into the loan contract;
• whether the the Code applies;
• which entity originates, administers or services the loan; and
• whether the business also provides credit assistance or acts as an intermediary.

One ACL held within a corporate group does not automatically authorise every related entity.

Mortgage & Finance Brokers

Mortgage and finance brokers will often provide a credit service under Section 7 of the NCCP Act. Under Section 8 of the NCCP Act, credit assistance can include suggesting that a consumer apply for, increase, or remain in a particular credit contract, or helping the consumer apply for that contract.

Section 9 of the NCCP Act covers acting as an intermediary between a credit provider and a consumer to help secure credit. A mortgage broker should assess whether its activities include:

• suggesting a lender or loan product;
• assisting with a loan application;
• submitting information to a lender; or
• communicating between the borrower and credit provider.

The label “referral platform” does not determine the licensing position.

Consumer Versus Commercial Lending

The business should establish whether its lending falls within the Code before selecting an ACL structure. This issue matters for lenders offering both consumer credit and commercial finance.

Under Section 5 of the Code, the assessment can involve:

• the debtor;
• the purpose of the credit;
• whether a charge is made; and
• whether the credit provider operates a credit business.

Credit for personal, domestic or household purposes, or specified residential investment purposes, may fall within the Code when the statutory requirements are met. Section 3–Section 6 and Section 13 of the Code also inform the perimeter assessment.

A borrower being a company, or a loan being described as “business purpose”, does not by itself settle the issue.

Exemptions & Other Authorised Pathways

Under Section 29 of the NCCP Act, a person generally needs an ACL or another permitted authority before engaging in a regulated credit activity. The available pathway may include:

• an ACL covering the relevant activity;
• written authorisation as a credit representative;
• a statutory or regulatory exemption; or
• another permission under the NCCP Act or the National Consumer Credit Protection Regulations 2010 (Cth) (‘NCCP Regulations‘).

An ACL exemption must be assessed against the actual conduct. An exemption applying to one part of a transaction does not necessarily cover other activities performed by the same business. A mortgage broker may instead operate as a credit representative of an ACL holder, provided the representative arrangement authorises the relevant activities.

Your Own ACL v Credit Representative Structure

Operating Under Your Own ACL

Holding an ACL gives a business direct control over its licence authorisations, credit activities, representatives, lender relationships and compliance arrangements. This structure may suit a lender, mortgage broker or finance business that requires operational independence and has the people and systems needed to manage licensee responsibilities.

Under Section 47 of the NCCP Act, an ACL holder is directly responsible for meeting its licence obligations. These include:

• maintaining organisational competence;
• managing conflicts of interest;
• complying with credit legislation;
• supervising representatives; and
• maintaining suitable compliance systems.

The business must also operate within its authorisations and any conditions attached to the ACL.

Operating as a Credit Representative

Section 64 of the NCCP Act allows an ACL holder to authorise another person in writing to engage in specified credit activities on the licensee’s behalf. The authorised person becomes a credit representative rather than holding an independent licence.

A credit representative can only conduct activities covered by the principal licensee’s authority or another available exemption. The representative must act on behalf of that licensee, so the arrangement cannot be used to conduct regulated credit activities independently under another business’s ACL. The written authorisation may also be narrower than the principal’s full licence scope.

Corporate Credit Representatives & Sub-Authorisation

A body corporate may be appointed as a credit representative. Under Section 65 of the NCCP Act, that corporate credit representative may, with the principal licensee’s consent and subject to the statutory requirements, sub-authorise natural persons to conduct specified credit activities on the licensee’s behalf.

The sub-authorised individuals are treated as credit representatives of the principal ACL holder. This structure may allow a mortgage broking company appointed by an aggregator or other licensee to authorise individual mortgage brokers. The principal licensee retains responsibility for appropriate oversight, training, and compliance arrangements.

Moving From a Representative to a Licensee

A credit representative may review whether to obtain its own ACL when its business model requires greater independence, broader credit activities or greater control over lender and aggregator relationships. Other factors may include:

• plans to offer new loan products;
• plans to operate a representative network; or
• plans to expand the scale of its mortgage broking or lending business.

The business must also assess whether it has the responsible managers, compliance systems, resources, and governance capability required of a licensee. Growth alone does not make an independent ACL necessary, and neither structure is inherently better. The choice should reflect the business’s activities, independence, representative arrangements and ability to meet direct ACL obligations.

How to Structure the Scope of Your ACL

Credit Provider v Credit Service Authorisations

A lender providing regulated credit may require an authorisation covering credit-provider activities. By contrast, a mortgage broker may instead require authority to provide credit services, including credit assistance or intermediary activities under Section 7 to Section 9 of the NCCP Act.

A business can perform both functions. For example, a lender may provide its own loans while also helping borrowers obtain credit from third-party lenders.

The requested authorisations should reflect the activities the business will conduct, rather than the title used by the business or its role in the finance industry.

Matching Authorisations to Business Model

The business should map its proposed services, products and customer journey before selecting ACL authorisations. This should identify each stage, including:

• customer onboarding;
• credit assessment;
• loan applications;
• entry into credit contracts;
• loan administration; and
• post-settlement assistance.

The mapping should also identify which legal entity performs each function and whether the function is a regulated credit activity under the NCCP Act.

A mortgage broker should assess whether its conduct involves:

• recommending a particular lender;
• assisting with an application; or
• acting between a borrower and credit provider.

Avoiding Unnecessary or Insufficient Authorisations

An ACL does not authorise activities outside its stated scope. A business with insufficient authority may be unable to conduct a regulated credit activity, even though it holds an ACL.

ASIC also assesses whether an applicant has the competence to conduct all activities covered by the requested authorisations. Under Section 47(1)(f) of the NCCP Act, a licensee must maintain competence to engage in the credit activities authorised by its licence. Seeking broad authority only for possible future use may make the competence assessment more difficult.

Understanding Licence Conditions

An ACL may include conditions affecting the activities a licensee can conduct and the circumstances in which it can operate. Section 45 to Section 46A of the NCCP Act establish processes concerning licence conditions, including their imposition, variation and revocation.

The licence should therefore be reviewed as a whole. A business should consider:

• the authorised credit activities;
• the conditions attached to the ACL; and
• whether those conditions restrict the proposed lender, mortgage broker or representative model.

Holding an ACL alone does not establish that the licence suits every proposed finance activity.

What Your Lending or Broking Business Needs Before Holding an Independent ACL

Responsible Managers & Organisational Competence

The Australian Securities & Investments Commission (ASIC) assesses whether an applicant has the knowledge and experience needed for its proposed credit activities. Under Section 47(1)(f) of the NCCP Act, an ACL holder must maintain competence to engage in the credit activities authorised by its licence.

An application must identify at least one responsible manager. ASIC’s RG 206 indicates that responsible managers should have:

• relevant industry experience;
• appropriate qualifications; and
• ongoing professional development.

For third-party home-loan credit assistance providers, this may include a Certificate IV in Finance and Mortgage Broking. The responsible-manager framework should match the business’s proposed authorisations, including whether it will lend, provide credit assistance or operate as an intermediary.

Fit & Proper Persons

ASIC must assess whether relevant people associated with the applicant are fit and proper. Section 37A and Section 37B of the NCCP Act establish the statutory framework, including matters concerning regulatory, licensing, banning, criminal and other history.

The people required to provide supporting information may include officers and other persons identified by the legislation. ASIC’s INFO 244 explains that applicants for new or varied credit licences may need to provide documents for each relevant person. This assessment is separate from the responsible-manager assessment: a person may need to satisfy the fit-and-proper test without being relied on to demonstrate organisational competence.

AFCA & Compensation Arrangements

An ACL applicant must be prepared to support the consumer complaint and compensation framework attached to licensing. Section 47(1)(i) of the NCCP Act requires an ACL holder to be a member of the Australian Financial Complaints Authority (AFCA) scheme.

Section 47(1)(j) of the NCCP Act requires compensation arrangements in accordance with Section 48 of that statute. Regulation 12 of the NCCP Regulations gives effect to this requirement through adequate professional indemnity insurance, subject to recognised exemptions and alternative arrangements. Adequacy may depend on:

• AFCA exposure;
• business volume;
• client numbers;
• credit activities; and
• representative numbers.

Compliance Systems & Representative Oversight

An ACL applicant needs compliance systems suited to the nature, scale and complexity of its business. Section 47 of the NCCP Act addresses capabilities including:

• organisational competence;
• conflict management;
• dispute resolution;
• compliance systems;
• a written compliance plan;
• resources;
• risk management; and
• representative supervision.

An ACL holder must also take reasonable steps to ensure representatives comply with credit legislation and remain adequately trained and competent. A lender, mortgage broker or finance business should assess whether its systems can monitor conduct, manage complaints, identify breaches and supervise representatives before seeking independent licensing.

Changing ACL Strategy as Lending & Brokerage Business Grows

Adding New Credit Activities or Products

A new product or service may require a licence variation before the business starts conducting the additional regulated credit activity. The business should first assess:

• whether the activity falls within the NCCP Act;
• which entity will perform it; and
• whether the existing ACL authorises it.

Under Section 29 of the NCCP Act, applying for a variation does not itself authorise the business to begin an activity outside its existing authority. The required licence, authorisation or exemption must be in place before the activity starts.

Varying an Existing ACL

A material change to the business model, authorised activities or licence conditions may require ASIC’s variation process. ASIC identifies changes such as conducting credit activities outside the existing authority or a departure affecting a key-person condition as possible triggers.

Section 57 of the NCCP Act deals with varying a licence to reflect a change in the licensee’s name. Changes to credit activities and licence conditions engage the framework in Section 45–Section 46A of the NCCP Act. The correct process depends on the change being made.

Appointing & Managing Credit Representatives

An ACL holder expanding through representatives must manage appointments, written authorities and ongoing supervision carefully. Section 64 to Section 71 of the NCCP Act address representative appointments, sub-authorisation, changes to authorisations and ASIC notifications.

Section 74 to Section 78 of the NCCP Act address licensee responsibility for representatives. Under Section 47(1)(e) and Section 47(1)(g) of the NCCP Act, the licensee must take reasonable steps to support compliance and ensure representatives are trained and competent.

Changes to Responsible Managers or Key Persons

A change to the people relied on for organisational competence can affect whether the licensee continues to meet its obligations. Under Section 47(1)(f) of the NCCP Act, an ACL holder must maintain competence to conduct the credit activities authorised by its licence.

The business should assess whether the remaining responsible managers have suitable knowledge and experience across the full licence scope. ASIC identifies the departure of a person named in a key-person condition as a circumstance that may require a licence variation under the NCCP Act.

Conclusion

An ACL strategy should fit the lender’s or mortgage broker’s actual credit activities, chosen licensing structure and required authorisations. The business should also assess its compliance capability and review its ACL when products, representatives, business activities or key personnel change.

With that framework in mind, contact us to request a consultation about your lending or mortgage broking structure. Our credit licensing lawyers at AFSL House can help assess whether your ACL, credit representative arrangement, authorisations and compliance systems fit your business plans.

Frequently Asked Questions