Last week, the legislation introducing a best interests duty for mortgage brokers was introduced into Parliament; while the industry was quick to respond, highlighting both the positive changes made and issues remaining, a great deal hinges on the finalised regulation and regulatory guidance which has yet to be released.
Daniel Oh, group legal counsel for Connective, explained, “ASIC has been tasked by the government to create the regulatory guidance for this legislation. Obviously, it’s currently very principles-based – ‘Thou shalt act in the best interest of your customer' – What does that mean? What are those hurdles? What standard do you have to meet?
"I have the pleasure of spending a whole day with ASIC next week as they commence their Mortgage Broker Accountability study; one of the key products out of that study will be the regulatory guidance, hopefully released prior to the 1 July 2020 kick off."
According to Oh, he "insisted" ASIC actually interact and speak directly with Connective brokers as part of that process.
“There are still two key areas that need to be dealt with, in my opinion. The key one is around the broker activity test. The other is a bit more of a technical point around when certain types of trail are seen as conflicted remuneration and banned and when they are not. We haven’t seen the draft regulations, but we hope and understand that issue should be fixed," he continued.
“There are still some unanswered questions around the payment of commissions. Obviously, clawbacks are still capped at two years so we’re waiting for the draft regulations that accompany the regulation to come out to see if there’s any more information about that."
Mark Haron, executive director of Connective, acknowledged the "bit of haste" behind getting this legislation in, tabled and read last week, as the 1 July deadline was unlikely to have been met otherwise. However, he remains confident in the process and policymakers' commitment to working with the industry.
“The government continues to reiterate they are committed to their promises going into the election that they would not touch upfront and trail. There will be a review in 2022, but that will still be in place. I’m confident the regulatory guidance will reflect that. I’m also confident in respect to the activity test, that common sense will start to prevail there," he said.
“I’ll be working very hard on behalf of Connective brokers to ensure we see the amendment we want to see, particularly around the activity test and the guidance reflect properly around remuneration as per the government’s attention. There’ll be a lot of behind the scenes work."
The aggregator head also introduced the idea of an interim grace period to ensure brokers are fully equipped to meet the duty before being held to its standards.
Haron explained, “The other bit we need to look at it timing. There’s going to have to be systems changes to lenders around some of the remuneration things, like how they calculate the net of offset and those continued payments. Do we need a non-enforceable period of 12-months from 1 July, where the law will be passed but we’ll be asking that it’s not actually enforced to give the industry more opportunity to make sure they get it right?"