The best interest duty proposed by the royal commission has elicited a broad range of industry responses, some dismissing it outright while others remain cautiously open to the possibility.
Under recommendation 1.2, Hayne’s final report read, “The law should be amended to provide that, when acting in connection with home lending, mortgage brokers must act in the best interests of the intending borrower. The obligation should be a civil penalty provision.”
Last week Samantha Gale, CEO of the Canadian Mortgage Brokers Association in British Columbia, dubbed the best interest duty “an impossible standard.” She used her former experience as a lawyer to illustrate the need for clearly defined procedural guidelines.
“You have to ask what the objective is. The challenge here is with this concept of principles-based regulation. If you take a look at the continuum of regulatory models, you’ve got principles-based regulations, which are concepts, ideas, and standards, and on the other end of the spectrum you’ve got what we call rule-based regulation,” she said.
“The challenge with the principles-based regulations is that nothing’s ever clear,” she added.
However, Jesse Vermiglio, partner for Holley Nethercote Commercial and Financial Services Lawyers, disagrees. He believes that ASIC’s previous experience defining ‘best interest’ during the FOFA reforms means that Australia may be able to overcome the issues that stumped Canadian regulators.
“It’s the same regulator that defined this for financial planners, so ultimately they are going to think about it in the same terms, obviously taking into account the differences between lending and investment advice,” he said.
“I’m not saying it won’t be a problem, but it’s easier. The path isn’t new. There are examples about the way in which this will be dealt with,” he added.
Peter White, managing director at the Finance Brokers Association of Australia (FBAA), has doubts regarding the direct applicability of best interest within the financial services sphere.
He said, “The best interest duty is something that needs to be very carefully worked through, through engagement with the industry obviously, but it also needs to be relevant to our market.
“We tend to default and say mortgage brokers give advice, but they don’t. By law they give credit assistance and therefore this best interest piece need to appropriately align itself to our regulations.”
To Vermiglio, the way forward doesn’t seem so complicated.
“It’s really all about the process. If your process is geared towards and structured to focus on and put at the centre of your service the consumer, then the positive outcome for that consumer will follow,” he concluded.