Financial Services and Credit Regulations

This assignment delves into the realm of financial services and credit regulations, focusing on key concepts such as responsible lending practices, assessing credit risks, and providing suitable advice to customers. The scenario involves a client, Adam, who is seeking various financial products and services, including home and contents insurance, redraw facilities, and mortgage protection insurance. Through this assignment, students demonstrate their understanding of Australian regulatory frameworks, such as the Australian Financial Security Authority (AFSA) and Credit Ombudsman Services Limited (COSL), and apply theoretical knowledge to real-world scenarios.

Name:
Course
Professor’s name
University name
City, State
Date of submission
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Scenario
You are the owner/office manager of Careful Financial Services (“CFF”) - a mortgage
broking business in Fedtown.
The business has been successfully operating for 5 years and a recent increase in loan
applications has you considering whether to employ a new loan writer.
One of the reasons for the increase in applications is the approval by local council of a
development application for a site that will contain 500 new houses. Off the plan sales
have been popular for the first release with an average sale price of $350,000.
The economy is reasonably stable with interest rates at 5.7%, they have not changed
in the past 6 months and are not predicted to change in the next quarter.
No risk management planning has ever been completed and you feel it is needed so
that both opportunities and risks are effectively identified and treated.
Relevant information:
 There is one other mortgage broking business in Fedtown.
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 Your business has 6 employees who have all been with the business for 3
years or more. 1 Business Development Manager, 3 loan writers, 1 support
officer, 1 administration assistant.
 Premises are owned.
 Spare office space is limited in the current premises.
 Business borrowings:
 Term loan $200,000
 Overdraft $20,000
 Procedure manuals completed when business first opened (never reviewed).
 Monthly workplace inspections are conducted.
 The business operates a company car that is leased.
 All computers are networked and basic virus protection is installed.
 Training of new staff and ongoing training is not well structured and is a bit
“hit and miss”.
 Business insurance is current – including personal injury and property damage,
fire, storm, malicious damage and other defined events, business vehicle
insurance, business interruption, personal accident or illness.
 Audits have not been completed as regularly as needed due to Office Manager
being too busy.
 A recent customer satisfaction survey showed excellent results, which has
been very positive for the business with a high level of referrals being
received.
 Business sponsors the local Under 10’s soccer team and has participated in
Clean up Australia day for the last 5 years.
 Aged debtors and creditors listing shows some long overdue accounts.
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Answer the following questions using the above scenario:
Please note: The answers provided should relate directly to the scenario and be in
your own words to demonstrate your understanding (do not copy directly from the
notes). The case study in the learners guide is there to assist in your completion of
the assessment.
Question 1 – Establish the Context
a) Identify at least 5 external and 2 internal stakeholders:
External Stakeholders Internal Stakeholders
 Suppliers
 Customers
 Local council
 Society
 competitors
 Employees
 Owners
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b) Identify at least 4 external and 3 internal influences:
External Internal
 Staff
 Money
 Company culture
 The economy
 Competition
 Technology
 Politics
 Customers and suppliers
c) List 5 key business drivers:
1. Cash
2. Profit
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3. Assets
4. Growth
5. People
d) Complete a SWOT analysis (provide at least 4 points under each heading)
Strengths
Weaknesses
 Good working environment
 Competent staff
 High levels of referrals
 Stable economy
 Limited office space
 Limited staff
 Non structured staff training

Opportunities Threats
 More referrals / new customers
 Operating another business


 Ageing debtors
 Audits that have not been completed
 competition

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e) To establish the risk management context provide information for the
following steps:
i) Step 1–
Define the
a) organisation,
this is an organization that deals in mortgage broking business and has been in
operation for the last five years.
b) process of activity
mortgage loan prequalification-application of loan-processing and
verification.
c) and establish its goals and objectives (use the table below to establish
objectives).
Criteria Objectives
Financial
To improve the company’s bottom line.
Operational
To be the most efficient company in terms of
service delivery.
Health and safety To protect the both the staff and society from
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health risks.
Compliance/Legal To comply with the government laws.
Technological To be most advanced in terms of technology.
Reputation To be a reputed company in terms of delivering
services.
ii) Step 2 – Specify the nature of the decisions that have to be made.
Routine and operational decisions- This are the decisions that have to be made in
regard to the operations of the business.
iii) Step 3 – Define the extent of the project activity or function in terms of
time and location.
The company has been in operation for over five years and the project has come a
long way to be fully established in this location.
Question 2 – Identify risks
a) List 7 risk identification tools that could be used in the formulation of the
risk management plan and discuss reasons for selecting each tool.
Tool Reasons
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1
Risk probability and
assessment of impact
It investigates the likelihood of the specific risks, cost ,
quality and performance.
2 Risk categorization
It is to determine the effects of uncertainty and
common risk causes
3 Expert judgement
This is to ensure that risk facilitation workshops, with
individual with experience in the project
4 Data gathering
Risk management plan is used in data collection and
identification
5 interviewing
Interviewing economists on the way forward to
determine the economic well-being of CFF
6 Risk categorization
It is categorizing risks so as to ensure that all risks are
classified into their own way
7
Risk urgency
assessment
Assessment of risk will be an essential tool in risk
assessment of CFF
b) Complete the following table identifying within each risk category:
 Financial/economic and Operational at least four risks/opportunities
 All other risk categories at least two risks/opportunities
Example of what is required
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A financial risk in the scenario could be that the increase in loans (due to the new
development) does not continue because the other mortgage broker in the town
attracts more clients.
Risk Description Impact of risk
Financial/economic 1. Expected increase in
loans does not continue
2.expected increase in
loans will not continue
3.Loan defaulting is
minimized
4.Increased loan facilitation
Risk - CFF could have cash
flow shortages because
they have put on extra staff
and the work is no longer
there.
Opportunity - CFF could
utilise these extra staff to
implement a new
marketing campaign, carry
out client retention or to
develop new strategies to
bring in more business and
increase their sales again.
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Operational 1.consulting and
outsourcing services are
important to CFF
2.Disruptive events in CFF
3.Operationalization of
4.
Risk - - CFF could have
cash flow shortages
because they have put on
extra staff and the work is
no longer there
Compliance/legal 1. consulting and
outsourcing services are
important to CFF
2.Disruptive events in CFF
3.Operationalization of
legal issues in legal rights
of the company
Risk- CFF could have cash
flow shortages because
they have put on extra staff
and the work is no longer
there.
Opportunity - CFF could
utilise these extra staff to
implement a new
marketing campaign, carry
out client retention or to
develop new strategies to
bring in more business and
increase their sales again.
Human 1.Expected increase in in
human resource
Risk- human resource
management, and risk of
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management
2.
labour turnover.
Health & Safety 1.increased health and
safety
2
Risk- CFF could have cash
flow shortages because
they have put on extra staff
and the work is no longer
there.
Reputation 1.expected risk of
reputational damage
2
Risk- CFF could have cash
flow shortages because
they have put on extra staff
and the work is no longer
there.
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Question 3 – Analyse and evaluate risks
a) From the risks identified in question 2b) complete a risk register
(appendix 1) for the following risk categories:
1. Financial/economic
2. Operational
3. Compliance/legal
Example of what is required
What can happen? - again relate it to the scenario
Look at what may or may not happen in the business
Eg loans decrease
How can it happen
List how it might happen – eg the competitor may attract more loans from the new
development to his business
Identify existing controls
What has CFF done to identify this risk? Nothing/something?
Adequacy of existing controls?
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Assess whether it is:
 not applicable (if there is no risk control in place)
 effective or
 ineffective
Use the following matrix to analyse the risks:
Likelihood
Rating Expression Attributes
A Extremely Likely The event will most probably occur under most
circumstances
B Likely The event will probably occur under most
circumstances
C Possible The event may occur under certain
circumstances
D Unlikely The event is unlikely to occur
E Rare The event will only occur under most
exceptional circumstances
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Negative Consequence
Rating Expression Attributes
1 Insignificant Very minor impact or cost to the business
2 Minor Minor cost, up to $5,000
3 Moderate Moderate Impact or cost, up to $30,000
4 Major Significant impact on the business, over
$30,000
5 Disastrous Possibly fatal impact to the business.
OR
Positive Consequence
Rating Expression Attributes
1 Insignificant Small benefit, low financial gain
2 Minor Minor improvement to image, some financial
gain
3 Moderate Some enhancement to reputation, high financial
gain
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4 Major Enhanced reputation, major financial gain
5 Significant Significantly enhanced reputation, high
financial gain
L: Low Risk manage by routine procedures
M: Moderate Risk responsibility must be specified
S: Significant Risk management attention needed
H: High Risk immediate action needed
OR
L: Low Opportunity manage by routine procedures
M: Moderate Opportunity manage by specific monitoring or response procedures
S: Significant Opportunity management attention needed
H: High Opportunity detailed planning required to prepare for and capture
the opportunity
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The completed matrix is as follows:
Likelihood
A S S H H H
B M S S H H
C L M S S H
D L L M S H
E L L M S S
1 2 3 4 5
Consequence
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Question 4 – Treat risks
Using the risk register completed in question 3 complete a Risk Treatment Plan
(Risk Treatment section in appendix 2).
Note: the Monitor and Review section of appendix 2 will be completed in Q6 below.
Question 5 – Communicate and consult
To ensure that all stakeholders are kept informed complete a communication plan
(appendix 3).
Question 6 – Monitor and review
Part A:
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Complete the first 3 columns of the Monitor and Review section of appendix 2
using the risks identified in Question 4 and the communication plan devised in
Question 5 to ensure they are reviewed in terms of their required timing.
Part B:
Assume that 2 of your risk treatment plans did not achieve the Measures of Success
you developed in part A above (appendix 2).
(i) Record two hypothetical results in the Result column to reflect this
unsuccessfulness.
Hypothetical results
1. Financial risks will determine the level of profit or loss that the company
will make
2. Operational risk will raise the levels of operational efficiency in the
company
and
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(ii) Recommend an option for improvement for both results in the Options for
Improvement column for all results recorded in (i) above
Option for improvement
1. Creating good financial structures that will be important in reducing
financial risks
2. Making a good operational system that involves the use of structures and
systems that are good to the company.
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Risk register
Function/Activity: Compiled by: Date:
Date of risk review: Reviewed by: Date:
The risk:
Identify existing
controls
Adequacy
of existing
controls
Consequenc
e rating
Likelihoo
d rating
Level
of risk
Risk
Priorit
y
What can happen How it can happen
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APPENDIX 1

Fina
ncia
l
/Ec
ono
mic
Loans/ mortgage default Due to the economic
condition in the country,
customers may default the
loans
CFF as a lender
has put in place
measures to
evaluate the
credit worthiness
of a customer
Effective 3Moderate C 3 M
Ope
rati
onal
Internal fraud This may happen when
some of the employees
collude within
The company
conducts internal
audits
Ineffective 4(MAJOR) B 5 H
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Co
mpl
ianc
e
/Le
gal
Reputational risk This may happen when
CFF operates its business
in a non ethical manner.
The company
has put in place
measures that
ensure that the
customer is
served well and
professionally.
Effective 3 Positive
consequence
D 2 M
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Extract of Risk Treatment Plan
Function/activity:
Risk Treatment Plan Monitor & Review
Risk
reference
Treatment
strategy
Resources
required
Responsible
person
Timing Monitoring
requirements
Review
completion
date
Measures of
success
Results Options for
improvement
Financial
risk
Creating
financial risk
mitigation
strategies
finances
Financial
risk manager
One
year
Financial
statements
12.12.2017 Profit or loss Profits Creating
financial risk
management
strategy
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APPENDIX 2

Operational
risk
Setting systems
that increase
efficiency
Money , Time
and a good
system
Operational
manager
One
year
Operational and
control systems
12.12.2017 Operational
efficiency
Increased
efficiency
Increasing the
efficiency
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Compliance
/ legal risk
Creating internal
controls that
ensure that there
is compliance
Having a
constitutional
and
memorandums
of association
for legal
purposes
Compliance
manager
One
year
The
memorandums
, articles and
constitution
12.12.2017 Compliance
rate
Reliance on
good legal
framework
Creating an
elaborate
internal control
system
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Reputation
Creating a good
name
Money and
time
Legal officer One
year
Controls and
operational
systems
12.12.2017 Profit or loss Increased
profits
Reputational
risk and creating
a brand
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Health and
Safety
Making sure that
safety standards
are followed and
the entire system
is healthy
Money and
Time
Security
officer
One
year
Controls and
operational
systems
12.12.2017 Safety and
security
standards
Increased
security
Safety
improvement
Complied by: Date: Reviewed by: Date:
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30
COMMUNICATION PLAN
Purpose
Who
Detail the relevant
audiences, include
internal and external
stakeholders
What
What information needs to
be communicated.
How
Communication method/s to
be used.
When
Ensure timing is accura
specific for each step in
risk management proce
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31
Management System
overview,implementation
scope, risk, reports, budget,
rollout training, strategies
and timetables
Meetings; demos and formal
paper based reports.
As required
Staff/ employees Responsibilities, risks ,
issue resolutions, strategies
Emails, meetings, bulletin
board and work shops.
Weekly( for status meet
Customers Goals and objectives,
business processes
Emails, advertisements All stages
suppliers Responsibilities, risks ,
issue resolutions, strategies
Meetings; demos and formal
paper based reports
All stages
customer Goals and objectives,
business processes
Meetings; demos and formal
paper based reports.
All stages
Society Responsibilities, risks ,
issue resolutions, strategies
Meetings; demos and formal
paper based reports.
All stages
Owner Goals and objectives,
business processes
Payment plans v All stage
Society Responsibilities, risks ,
issue resolutions, strategies
Payment plans All stages
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32
Question 7
You are a mortgage broker at Thistown Brokers, Thistown. You do not hold an Australian
Financial Services (AFS) Licence. A prospective client calls into the office to discuss his
financial requirements. Adam Brody (the client) is interested in purchasing a house in Thistown
Heights. Adam recently sold his unit and will be living in the new property with his girlfriend
Rachel and dog Penny Lane. The property will be purchased in Adam’s name only. He has
$150,000 deposit towards the purchase and is seeking to borrow $400,000 to $450,000.
Adam works as a Sales Manager and earns $120,000 per annum. His fortnightly pay is deposited
direct to his transaction account. Adam is seeking a flexible product that does not have a fixed
interest rate. Under the FSRA a loan is not classified as a financial product.
After clarifying Adam’s situation and eligibility you have decided to recommend a standard
variable loan with FEDBANK. You outline the features and benefits of the product to him,
including the redraw facility. After considering these, Adam advises that he often has surplus
funds in his transaction account, however would prefer not to deposit these to the loan account in
case he needs the funds for other purposes. He often has a balance of $10,000 or more in the
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