Last week, the Financial Sector Reform (Hayne Royal Commission Response – Protecting Consumers (2019 Measures)) Bill 2019 was introduced into parliament, implementing recommendations 1.2 and 1.3 of the royal commission, including a best interests duty (BID) for mortgage brokers. While the regulation that will accompany the legislation has yet to be finalised, key industry players have weighed in on where the process currently stands and what they hope to see moving forward.
The MFAA has welcomed some of the changes made between this version of the legislation and the last, but “remains concerned” certain areas of the draft regulations won’t serve consumers’ interests.
Among the issues that have been resolved is the net of offset time limit having been extended to 365 days from 90. The government has also amended its original position regarding retrospectivity, with the new legislation on conflicted remuneration only applying to contracts completed on or after the implementation date of 1 July 2020. Further, the verbiage of “annual review” has been changed to “period review”, an update the MFAA has deemed realistic and appropriate to consumers’ needs.
However, the association has identified many issues which remain. Atop the list is that the current legislation extends BID beyond residential mortgage finance to include all credit assistance provided by mortgage brokers. The MFAA does not believe this should be the case as it “unnecessarily complicates” the broker’s primary function; additionally, brokers don’t have the same level of systems, support or control over these products as compared to residential mortgages. According to the MFAA, this could likely incentivise brokers to stop providing additional assistance beyond home loans in order to avoid regulations they can’t reasonably meet, “which is not a good outcome for consumers.”
Further, under the current bill, brokers who don’t do home loans or only do so rarely, will not be subject to the duty. So while finance such as personal loans, credit cards, and auto loans arranged by a mortgage broker would be subject to BID, even when an entirely stand-alone product, they would not be covered if arranged by a broker who is not a mortgage broker — a lack of consistency which could prove detrimental to consumers.
The list of unresolved issues the MFAA provided to its members also included several concerns around remuneration, as well as the remaining need for improved clarity being provided to those held to the BID.
“Whilst we acknowledge the BID is principle-based, we strongly believe that industry would benefit from further guidance on meeting a BID in both the regulations and/or ASIC regulatory guidance,” said Felton.
FBAA managing director Peter White explained that numerous steps remain in the process before the legislation is finalised, saying “the journey isn’t over yet” and confirming the FBAA is also pushing for further amendments.
While the group remains committed to working with policymakers, White’s message to brokers is to remain calm and continue focusing on providing quality service.
“Mortgage brokers should be embracing this, as we’ve known it has been coming for some time, and make sure to let their clients and the marketplace know: ‘You should only ever deal with a mortgage broker. We’re the only ones who must act in your best interest by law. You can’t say the same for the bank,’” he said.
Loan Market has welcomed the tabling of the bill in parliament, anticipating it to act as a catalyst for further growth in the channel.
"We believe the July 1 change will spur the next wave of growth for our industry, taking broker market share up to 70% as customers seek out brokers who act in their best interest, rather than a branch manager who works in the interest of the bank,” explained executive chairman Sam White.
"We know that the large majority of brokers are already working in the best interest of their clients, however, we see that the shift for brokers will be centred around having access to the right technology that supports a broker's process and how a broker can prove they've met their BID for each and every client, each and every time.
"Loan Market is well underway in building a process for our brokers to keep them safe during this time of change and look forward to sharing the prototype and gaining valuable feedback from our brokers before we go live on July 1."
While the group plans to continue working with ASIC, the MFAA and other industry leaders before the legislation is finalised, White does not want mortgage brokers to worry.
“For now, I think that brokers should have a very well-deserved break over the holidays, knowing that their aggregator is working to make the transition more accessible for them with system changes and training,” he said.
PLAN has also welcomed the introduction of the legislation, saying it seems “largely in line” with what it has reviewed to date.
“We are taking time over the next few days to better understand the detail. How best interests duty and remuneration changes will operate will be better understood once we receive regulations,” explained CEO Anja Pannek.
“We will continue to work closely with brokers to understand updated responsible lending guidance and navigate through any changes.
“In the meantime, brokers should continue to bring the best of broking to life in all interactions with customers.”