ASIC Catches Lenders Hiring Brokers Without Background Checks
ASIC’s September update reveals some licensees are appointing brokers without mandatory reference checks, putting borrowers at greater risk.
Australia's financial services regulator has flagged a compliance failure that goes directly to the heart of consumer protection in the home loan market: some licensees have been appointing mortgage brokers without completing the mandatory reference checks the law requires.
Australian Broker reports that ASIC's September financial advice update has identified gaps in how licensees are vetting new representatives — a process that has been mandatory under ASIC's Protocol since March 2025. Under the Protocol, any Australian Financial Services (AFS) licensee taking on a new representative must obtain a reference from that person's current or most recent licensee before employing or authorising them. Critically, that requirement extends explicitly to "a financial adviser or mortgage broker."
Those who fail to comply face financial penalties. ASIC also has the power to suspend or cancel a licensee's AFS licence, or impose additional operating conditions. The regulator went further, urging licensees to closely scrutinise any representative who has moved from a firm with known compliance issues, "noting that there are a number of publicly known AFS licensees with recent compliance concerns highlighted by ASIC actions."
Why This Matters to Borrowers
The reference-check requirement exists because a broker's professional history is material to the quality of advice a borrower receives. A broker who has faced complaints, been investigated for misconduct, or come from a licensee that has had regulatory problems represents a different risk profile to one with a clean record. ASIC's Protocol is designed to ensure licensees actually know who they are bringing on before authorising them to work with borrowers.
When those checks are skipped, the safeguard between a borrower and potentially unsuitable advice is weaker than the law intends. This matters most to people in the middle of a major financial decision — whether they are applying for a first home loan or working through a refinance.
The scale of ASIC's broader enforcement activity puts the reference-check issue in context. In the first half of 2026 alone, the regulator received 9,807 misconduct reports. Over the full 2025–26 financial year, ASIC secured a record $830 million in civil penalty orders — with $644 million of that returned directly to Australians who had suffered losses. These are not small numbers, and they reflect how seriously the regulator is treating systemic compliance failures across the financial services sector.
For mortgage holders and buyers, the message is practical: the institutions and individuals you deal with are subject to meaningful oversight, but that oversight depends on those institutions following the rules in the first place. When reference checks are skipped, the system that is supposed to protect you develops gaps.
Insurance Shortfalls, Bannings and What to Look For
ASIC's September update also identified 10 licensees reporting professional indemnity (PI) insurance below the $2 million minimum required under Regulatory Guide 126. Following enquiries, nine of the 10 had simply misreported their actual cover and corrected the error. The tenth, however, genuinely held inadequate insurance. That licensee has since lodged a breach report and begun winding up its licence.
ASIC described adequate PI insurance as "an essential component of the compensation framework," designed specifically to protect clients against financial losses from poor advice or misconduct. Without adequate PI cover in place, borrowers who suffer harm as a result of poor advice have fewer practical avenues to seek compensation.
The update also catalogued a series of recent bannings and licence cancellations, many connected to inappropriate superannuation advice. Cases included multi-year bans for advisers who steered clients — including retirees — to invest the majority of their savings in high-risk products with limited performance history, such as the Shield Master Fund. Licence cancellations were also linked to unpaid Compensation Scheme of Last Resort payouts. ASIC additionally confirmed it is working with 16 international regulators to crack down on unlicensed "finfluencers" — social media figures who offer financial commentary or product recommendations without the required authorisation.
For borrowers, the practical takeaway is to verify that any broker you deal with holds a valid Australian Credit Licence (ACL) or is properly authorised under one — a check you can perform on ASIC's public register. Ask directly how long they have been with their current licensee and whether their firm has faced any regulatory action. A properly credentialled broker will answer those questions readily. It is also reasonable to ask about the licensee's professional indemnity insurance — knowing that adequate cover is in place means that if something does go wrong, you have a realistic path to compensation.
Choosing a well-vetted, experienced broker who works across a wide panel of lenders gives you both consumer protection and genuine market access. Use our refinance savings calculator to understand the potential benefit of a better rate before you start that conversation, and browse our cheapest home loans to see where market rates currently sit.