One of the ways it administers these entities is by granting Australian Financial Services Licences (AFSL) and Australia Credit Licences (ACL). AFSLs are issued to financial service providers that typically deal in superannuation, managed funds, shares and company securities, derivatives and insurance. ACLs are issues to individuals and businesses that engage in consumer credit activities including banks, credit unions, finance companies and mortgage and finance brokers).

It is therefore crucially important that Australian investors only deal with financial institutions and companies that have these licenses to ensure they are regulated by ASIC for security and protection.

For example, buying a new home is a major decision t, which is why they weigh up their options carefully. However, what's even more important than the asset of the house, is your home loan credit provider. The institution you choose to finance your home will determine how your home financing is structured which can vary given the range of products available and service providers that can assist. Home owners usually either work with a mortgage broker or approach a bank directly with regards to their home financing. To advise on financing options in Australia once must hold an Australian Credit Licence (ACL). Unless the mortgage broker or bank holds an ACL, or is an authorised representative of a ACL holder, they are not regulated by ASIC and should be avoided. Without proper licensing and authorisations from ASIC the client cannot be provided with any guarantees or protection as the ACL ensures that licensees meet their responsibilities set out in the National Consumer Credit Protection Act (NCCP).

Generally, working with an independent mortgage broker is preferable since they are more likely to work with a variety of lenders and home loan products, and are therefore more informed to advise on the best options and act in your best interest for your needs given their more extensive approved product list.

Whereas choosing to deal directly with a bank, their advisers are commonly restricted to the bank’s product approval list which is usually restricted to only their bank specific branded products which may not be the best fit for your financial circumstances. This scenario can similarly be seen with regards to financial planning and the recent enforcement of FOFA reforms.

Importance of ASIC Licensing

The most important aspect of ACLs, is that brokers can't simply sell any mortgage product without taking into consideration your financial situation and objectives. The NCCP Act protects consumers by ensuring that mortgage brokers and lending institutions provide financing that meets the client's needs.

Chapter three of the NCCP Act states that a duty of care is in place that binds the mortgage broker to responsible lending practices. They have to demonstrate that they are acting in the consumer's interests by performing assessments that prove the suitability of the credit product before providing it to the client.