Compliance Tips & Best Practices to Maintaining Your Australian Credit Licence

Introduction

Maintaining an Australian Credit Licence (ACL) requires ongoing diligence and a commitment to meeting the compliance obligations set by the Australian Securities and Investments Commission (ASIC). Adhering to the National Consumer Credit Protection Act 2009 (Cth) is not just a regulatory requirement; it’s fundamental to operating your credit business efficiently, honestly, and fairly, thereby safeguarding consumer trust and your business’s reputation.

This guide offers practical tips and best practices to help ACL holders navigate their continuous compliance responsibilities effectively. It covers key areas such as understanding general conduct obligations, implementing robust compliance and risk management systems, managing resources, fulfilling ASIC reporting duties including the annual compliance certificate, preparing for potential audits, and ensuring staff competence, providing actionable insights for maintaining your licence in good standing.

Meeting Your General Conduct Obligations: Key Compliance Practices for Licence Maintenance

Understanding and complying with your general conduct obligations under the National Consumer Credit Protection Act 2009 (Cth) is essential for maintaining your ACL. Outlined in section 47(1), these obligations form the foundation of compliant credit operations. Implementing best practices in these areas is critical for retaining licence validity and safeguarding your business.

Best Practices for Acting Efficiently, Honestly, and Fairly

One of the cornerstone obligations under section 47(1)(a) of the National Consumer Credit Protection Act 2009 (Cth) is to act efficiently, honestly, and fairly in all credit activities. This extends beyond merely following rules—it requires embedding ethical practices at the core of your business culture.

Key points include:

• Minimum Standard for Operations: Treat this obligation as the baseline for all business interactions and processes.
• Stand-alone Requirement: ASIC considers it a standalone duty, meaning your licence may be at risk if this is breached—even when other specific rules are technically met.

Adopting and consistently enforcing this standard illustrates your commitment to maintaining regulatory compliance and ensures a solid foundation for licence retention.

Maintaining Competence: Tips for Licensees and Representatives

Ensuring both organisational and representative competence is critical under section 47(1). Compliance in this area depends on two key focus areas:

• Organisational Competence:
  • Regularly evaluate and enhance your business’s overall capabilities to meet the standards required for authorised credit activities (s47(f)).
  • A consistent demonstration of organisational fitness is essential for retaining licence approval from ASIC.
• Representative Competence:
  • Develop and maintain robust training programs for representatives to ensure ongoing role-specific competence (s47(1)(g)).
  • Incorporate Continuing Professional Development (CPD) objectives and align with ASIC’s Regulatory Guide 206.

Proactive competence management not only satisfies ASIC’s requirements but also ensures your licence’s longevity and organisational sustainability.

Effective Conflict of Interest Management: Best Practices for Licence Protection

Under section 47(1)(b) of the National Consumer Credit Protection Act 2009 (Cth), effectively managing conflicts of interest is a critical compliance area. Adequate arrangements must be established to prevent client disadvantages caused by conflicts involving your business or its representatives.

To protect your licence, consider adopting these best practices:

• Proactive Identification:
  • Regularly identify potential conflicts stemming from factors like remuneration structures, product limitations, or referral agreements. Early identification helps mitigate risks before they impact compliance.
• Robust Controls:
  • Implement specific measures to prioritise client interests over any conflicting incentives or relationships. For instance, procedural safeguards can prevent biases, such as favouring higher commissions over client needs.
• Transparent Product Offerings:
  • Maintain a well-researched, comprehensive product list, especially when offering third-party loans. This demonstrates that conflicts are managed appropriately and that client choices are not unduly restricted.
• Consistent Monitoring:
  • Regularly review the effectiveness of your conflict management arrangements to ensure sustained compliance and prevent any lapses.

Staying Compliant: Adhering to Licence Conditions and Credit Legislation

Compliance with your ACL’s conditions and all applicable credit legislation is a fundamental best practice for maintaining your licence. Under section 47(1), the following obligations are particularly significant:

• Comply with Licence Conditions:
  • Fulfil every specific condition imposed by ASIC on your ACL (s47(1)(c)), alongside the broader standard regulatory requirements.
• Comply with Credit Legislation:
  • Ensure consistent adherence to the National Consumer Credit Protection Act 2009 (Cth), National Credit Code, and all other relevant laws governing credit activities (s47(1)(d)).
  • This includes provisions from the Australian Securities and Investments Commission Act 2001 (Cth) and other applicable regulations.

Employing systems to track and ensure compliance across these areas is essential. Regularly updating these systems to reflect legislative changes or shifts in your operations ensures ongoing licence validity and adherence to regulatory expectations.

Best Practices for Your Regulatory Compliance Framework

Tip: Document Your Compliance Plan Thoroughly

To maintain your ACL, meticulously documenting your compliance framework is a critical best practice. Section 47(1)(k) of the National Consumer Credit Protection Act 2009 (Cth) requires licensees to have adequate compliance arrangements and systems, as well as a written plan that details them. This plan acts as essential evidence, demonstrating to ASIC how your business meets its general conduct obligations—a crucial aspect of ongoing licence maintenance.

While the level of detail in your compliance documentation will vary depending on your business’s scope, nature, and complexity, thoroughness is always recommended. Consider including:

• Defined Responsibilities: Clearly outline who is accountable for specific compliance tasks to avoid confusion and ensure accountability.
• Timeframes: Establish timelines for implementing, reviewing, and monitoring compliance actions.
• Record-Keeping and Reporting Procedures: Detail how records will be maintained, tracked, and reported to comply with regulatory requirements.

This proactive documentation ensures your organisation is well-prepared to demonstrate compliance and remain aligned with your ACL obligations.

Tip: Actively Implement, Monitor, and Review Your Compliance Approach

Having a documented compliance plan is just the first step—actively implementing it is equally important. Integrating the outlined procedures into your organisation’s daily operations ensures that compliance becomes a part of your business culture.

Key actions for effective implementation include:

• Securing Leadership Commitment: Obtain buy-in from senior management to underline the importance of compliance at every level.
• Fostering a Compliance-Aware Culture: Promote awareness across the organisation so that all team members understand their roles in maintaining compliance.

Consistent monitoring and regular reviews are also vital for ACL compliance and sustainability. Best practices for this include:

• Setting Monitoring Processes: Establish mechanisms to track adherence to your compliance plan and identify potential issues or breaches promptly.
• Maintaining Detailed Records: Keep comprehensive documentation of all monitoring activities, including successes and failures. This is crucial when completing your annual compliance certificate, as required under section 53 of the National Consumer Credit Protection Act 2009 (Cth).
• Periodic Reviews and Updates: Regularly review and update your compliance measures to reflect regulatory changes and adapt to evolving business needs. This ensures they remain effective and relevant, further safeguarding your licence status.

Best Practices for Key Internal Compliance Systems

Best Practices for Developing Your Risk Management Systems

Maintaining your ACL requires well-functioning, robust internal systems, particularly for risk management. Under section 47(1)(l)(ii) of the National Consumer Credit Protection Act 2009 (Cth), licensees not regulated by the Australian Prudential Regulation Authority (APRA) must establish and continuously maintain adequate risk management systems. These systems are essential for demonstrating ongoing compliance, which is a cornerstone for retaining your licence.

ASIC guidance highlights the importance of a comprehensive and systematic approach to effective risk management. To meet your obligations and preserve your licence, ensure your systems:

• Identify and Evaluate Risks: Proactively assess the risks within your credit activities, focusing on both:
  • Potential harm to consumers or market integrity.
  • The likelihood of non-compliance with credit legislation.
• Implement Effective Controls: Develop and deploy specific controls aimed at managing or mitigating these identified risks.
• Monitor and Adapt Controls: Continuously assess the effectiveness of your controls, making improvements as required.

It’s important to note that the adequacy of risk management depends on your business’s nature, scale, and complexity. Regular evaluations and updates of your risk management systems are a best practice for adapting to evolving circumstances and ensuring sustained compliance with your ACL obligations.

Best Practices for Implementing Dispute Resolution Procedures

A critical aspect of complying with your ACL obligations is the establishment of effective dispute resolution procedures. This supports both customer satisfaction and your compliance under sections 47(1)(h) and 47(1)(i) of the National Consumer Credit Protection Act 2009 (Cth). Best practices in this area involve adhering to two key requirements:

• Internal Dispute Resolution (IDR):
  • Develop and maintain an IDR mechanism tailored to ASIC’s standards.
  • Ensure your IDR system addresses all dispute types associated with your credit activities or those of your representatives. This forms the first line of resolution for client complaints.
• External Dispute Resolution (EDR):
  • Fulfil the mandatory requirement to maintain membership with the Australian Financial Complaints Authority (AFCA).
  • AFCA provides an independent avenue for clients who are dissatisfied with your IDR process, reinforcing confidence in your compliance framework.

Adhering to these dual requirements not only ensures compliance but also demonstrates your commitment to treating clients fairly. This, in turn, bolsters trust while supporting the ongoing maintenance of your licence.

Best Practices for Maintaining Compensation Arrangements

Ensuring the adequacy of your compensation arrangements is fundamental for maintaining your ACL under sections 47(1)(j) and 48 of the National Consumer Credit Protection Act 2009 (Cth). These arrangements are designed to protect consumers, providing compensation pathways for losses suffered as a result of breaches by your business or its representatives.

Key best practices for meeting this obligation include:

• Professional Indemnity (PI) Insurance:
  • As the primary method, most licensees meet compensation requirements via adequate PI insurance.
  • Regularly review your PI insurance policy to confirm it aligns with:
    • The nature, scale, and complexity of your credit operations.
    • ASIC’s specific requirements.

Maintaining appropriate compensation arrangements demonstrates financial accountability and safeguards your clients while fulfilling your licence obligations. Keeping your PI insurance up-to-date is a strong indicator of your commitment to compliance and risk responsibility.

Best Practices for Managing Resources and Representatives to Maintain Compliance

Best Practice: Maintaining Sufficient Resources for Compliance

Ensuring that your organisation consistently has adequate resources is a fundamental best practice for maintaining your ACL. Section 47(1)(l)(i) of the National Consumer Credit Protection Act 2009 (Cth) mandates that licensees, unless regulated by APRA, must maintain sufficient resources to conduct their authorised credit activities effectively and implement necessary supervisory arrangements.

ASIC elaborates that the adequacy of resources is assessed based on the nature, scale, and complexity of your business. Compliance best practices include establishing systems to continuously monitor and adjust resources to meet current and evolving business demands. These resources are typically categorised as financial, technological, and human, all of which are crucial for effective compliance.

Human Resources

To comply with the National Consumer Credit Protection Act 2009 (Cth) and National Credit Code, your organisation should maintain a workforce equipped to:

• Fulfil all legal obligations.
• Oversee and monitor representatives effectively.
• Address day-to-day operational demands while preparing for future needs.

Best practices here include thorough recruitment practices, continuous training, and performance monitoring. Regularly reviewing staffing levels against metrics such as service complaints or operational capacity is essential to ensure staff adequacy and minimise compliance risks.

Technological Resources

Adequate Information Technology (IT) infrastructure is another key component of compliance. Your technological systems must:

• Support adherence to all legal requirements.
• Ensure accurate client record-keeping and data protection.
• Safeguard confidential information.
• Meet both current and anticipated operational demands.

Best practices for technological adequacy include:

• Reviewing IT security protocols regularly.
• Ensuring systems are up-to-date and fit-for-purpose.
• Maintaining and testing disaster recovery plans.
• Evaluating third-party service provider performance consistently.

By aligning human and technological resources with operational and regulatory requirements, you strengthen your compliance position and ensure continued fulfilment of your ACL obligations.

Best Practice: Supervising Representatives to Ensure Compliance

Effective supervision of representatives is crucial for complying with section 47(1)(e) of the National Consumer Credit Protection Act 2009 (Cth). Licensees are obligated to take reasonable steps to ensure representatives act in compliance with credit legislation. Supervisory practices must reflect the scale and complexity of your business and the roles performed by your representatives.

ASIC defines representatives broadly, encompassing employees, directors, and authorised credit representatives acting on your behalf. To meet this obligation, you must establish systems that:

• Verify Compliance: Maintain mechanisms to monitor activities and ensure representatives adhere to license conditions and credit legislation.
• Address Breaches Promptly: Take decisive and documented action against any identified compliance failures.

Key Supervision Measures

Best practices include:

• Maintaining accurate, up-to-date records of representatives’ authorisations.
• Clearly defining and communicating the scope of each representative’s authority.
• Actively monitoring representative activities to verify compliance.
• Conducting background checks before appointing representatives to ensure suitability.
• Responding quickly and effectively to any breaches, including implementing corrective measures.

Additionally, compliance with ASIC’s Reference checking and information sharing protocol is mandatory when recruiting mortgage brokers under section 47(1)(ea). This ensures you meet both regulatory standards and your supervisory obligations.

Best Practice: Ensuring Representative Competence and Training

Section 47(1)(g) of the National Consumer Credit Protection Act 2009 (Cth) requires licensees to ensure their representatives are adequately trained and competent, making it a critical part of maintaining compliance. Competence is central to providing compliant financial services and preserving the integrity of your licence.

Key Best Practices for Competence:

• Skills Verification: Confirm representatives have the required skills and knowledge for their roles before engaging in credit activities.
• Ongoing Training: Implement regular training programs to keep representatives updated on regulatory changes, industry advancements, and compliance requirements.
• Competency Documentation: Maintain comprehensive records of training and assessments to demonstrate adherence to your obligations.

ASIC’s RG 206 provides further details on representative training requirements. While focusing on compliance training specifics is addressed elsewhere, integrating training and regular competency reviews into your compliance strategy helps meet ASIC’s expectations and ensures representatives perform their duties effectively.

Best Practices for ASIC Reporting, Notifications, and Audits

Best Practice: Ensure Accurate Annual Compliance Certification

A key practice for maintaining your ACL is lodging your annual compliance certificate with ASIC, as required by section 53 of the National Consumer Credit Protection Act 2009 (Cth). This certificate confirms your adherence to licence obligations over the past year.

To uphold the accuracy of this certificate and support your attestation, implement the following measures:

• Maintain thorough records of all compliance-related activities, including compliance monitoring and reporting efforts.
• Document both compliance successes and any non-compliance issues identified.

Such diligence demonstrates robust compliance management, which is integral to retaining your licence and meeting ongoing obligations as a licensee.

Best Practice: Keep ASIC Informed of Changes and Significant Issues

Proactively notifying ASIC of relevant updates and issues is an essential part of effective ACL maintenance and compliance. Key steps include:

• Promptly notify ASIC of company changes: Ensure updates such as changes to directors or addresses are reported within the required timeframes. This prevents penalties and supports transparency.
• Report significant compliance breaches: Establish clear internal processes to identify and assess significant non-compliance issues, and understand your obligations for reporting them to ASIC.

These proactive measures, combined with internal oversight, help maintain transparency and regulatory compliance while protecting your licence standing.

Best Practice: Maintain Audit-Readiness for ASIC Reviews

ASIC regularly monitors licensees through compliance reviews and surveillance visits to ensure adherence to the National Consumer Credit Protection Act 2009 (Cth) and general conduct obligations. To remain prepared:

• Keep detailed, well-organised documentation of your compliance framework, including:
  • Compliance plans and policies
  • Monitoring records
  • Risk management systems
• Conduct regular internal audits to assess your readiness.

Being able to readily produce evidence of your compliance framework showcases strong management and facilitates smoother ASIC reviews. This readiness is key to maintaining your financial services licence and navigating regulatory scrutiny effectively.

Conclusion

Successfully applying for an ACL and upholding your ACL hinges on implementing best practices for ongoing compliance with ASIC’s requirements under the National Consumer Credit Protection Act 2009 (Cth). Adopting proactive strategies and tips for managing general conduct obligations, establishing effective compliance frameworks, maintaining adequate resources, meeting reporting duties, preparing for audits, and ensuring staff competence are essential for operating lawfully and building trust.

To effectively implement these compliance tips and best practices within your operations, contact AFSL House today for trusted expertise in financial services law. Our specialists offer proven solutions tailored to your needs, helping you establish and maintain robust compliance frameworks to secure the integrity and success of your credit business compliance in Australia.

Frequently Asked Questions