ASIC is risking market confusion in its repeated use of the term 'independent' to describe mortgage brokers, despite this language being strictly prohibited in broker representations to clients.
ASIC has repeatedly warned brokers against using terms such as 'independent', 'impartial' or
'unbiased', which are outlawed due to the conflicts created by lender commission payments.
As recently as February, ASIC guidance on advertising said these terms were restricted if a provider receives a commission, volume bonus or other benefit that may influence advice.
However, despite the regulator's enforcement of the restriction - including an enforceable undertaking for Mortgage Choice in 2004 - it has recently enshrined the term 'independent' in its documentation.
Australian Broker has uncovered an updated version of the credit regulator's Australian Credit Licence application form 'CL01', where applicants are asked if they will provide 'independent' credit assistance. The ACL question, which defines independence as providing a choice of product from a number of different providers, even goes so far as to bold the word independent.
“Does the applicant intend to provide independent home loan credit assistance?" the form asks.
"Your business will be providing independent home loan credit assistance where the credit assistance relates to credit products offered by more than one credit provider independent of the licensee,” it says.
This definition of 'independent' credit assistance is also stipulated in newly-released Regulatory Guide 206, Credit Licensing: Competence and Training, which outlines broker training standards.
"In our representative training requirements, we distinguish between (a) representatives who provide independent home loan credit assistance... and (b) other representatives who only provide home loan credit assistance in relation to credit products offered by their own credit licensee," the guide says.
In the document, ASIC defines independent credit assistance as assistance related to credit secured by real property where neither the licensee nor its representatives will be the credit provider.
Last year, an amendment to the NCCP Act stipulated that a licensee must not use the words 'independent', 'impartial' or 'unbiased' to describe their services to consumers. In its guidance on advertising, ASIC said the use of these three terms is also restricted by the Corporations Act.
ASIC explains its restriction by saying consumers may not understand their meaning.
"An advertisement should not claim that a financial advice service is an ‘independent service’, or describe an advice service or adviser in language that implies independence if this is not the case," ASIC says. "For example, because all or part of the adviser’s remuneration is derived from the financial products they recommend, or because there is a relationship between the adviser and a particular product issuer."
When approached by Australian Broker about the disccrpancy in terminology, an ASIC spokesperson responded by saying the regulator may change the term if there is confusion.
“ASIC is comfortable with the use of the term but if there was evidence of real confusion ASIC would consider providing further explanation in RG 206 or adopting another term.”
However, ASIC said it had seen no such confusion. “We have seen no evidence that brokers are confused by that use of the term in the context of RG 206 and given its definition in RG 206.
ASIC said it had specifically defined the term ‘independent’ in RG 206 for this specific purpose.
“Independent credit assistance is defined in RG 206 for the purposes of RG 206 and in order to make a distinction with credit assistance provided by employees and representatives of lenders solely in relation to that lender's own loans,” the ASIC spokesperson said. “This was done after a public consultation process on the issue of appropriate training standards for such credit advisers.
ASIC said it was also comfortable that brokers understood the difference.
“We are also comfortable that brokers generally understand why there are restrictions on the use of the term independent in describing their services to potential customers because of the potential conflicts associated with commissions etc.,” the spokesperson said.
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