Yesterday, 24 June, ASIC published the much-anticipated final regulatory guidance for the mortgage broker best interests duty (BID).
Shortly after, ASIC Commissioner Sean Hughes provided additional insight to Australian Broker regarding the manner in which the topics of concern raised by the industry were handled, how the regulator plans to enforce the duty and what brokers should be doing over the next six months.
While the release of the draft guidance in February addressed some of the concerns industry expressed when the legislation was first introduced in December 2019, others remained, resulting in a unanimous cry for more clarity.
Much of that worry centred around the extent to which a broker is responsible for being familiar with lenders not on their aggregator’s panel.
“This was one of the most significant questions coming out of the review we undertook,” said Hughes.
“If brokers were aware there was a superior product they can’t access and isn’t on their panel, the question in their mind was ‘do I have the obligation to recommend the client go outside the panel?’
“We didn’t go so far in our final guidance as to require that. But what we did leave open was for brokers to make sure they are fully aware of all the options available and to equip themselves with the knowledge their customers could benefit from,” he explained.
Rather than placing additional onus on the broker, the guidance on this matter seeks to stimulate a more overarching shift within the marketplace.
“If there is a superior product, then maybe that’s an opportunity for the broker to speak to its panel providers and say, ‘Are you aware I can’t get access to this particular loan product? Have you thought about providing a product with similar features to the panel that I can get access to?’ said Hughes.
“It’s really around raising awareness to make sure that brokers have an adequate suite of options available to put in front of their customers.”
In February, association and aggregator heads also expressed concern around BID extending beyond mortgage finance to include all credit assistance provided by mortgage brokers, such as in bundled products, clouding their mission and giving them a disadvantage to brokers who don’t do home loans and as such will not be subject to the duty.
Hughes explained that, unlike the panel issue, this matter does not fall within the jurisdiction of what ASIC is able to shape.
“If the person who is providing advice is not a mortgage broker, then BID doesn’t apply. That was a policy decision made by Government and put in place by Parliament. Our guidance doesn’t change that in any way,” he said.
In May of this year, ASIC delayed the commencement date for the mortgage broker reforms by six months, in order to give brokers ample time to prepare.
“Inevitably, some brokers may take some time to get their systems and practices up to speed to discharge the duty. This is about ensuring consumers get the best deal possible. It’s not about us putting in place a punitive regime which is intended to punish brokers,” said Hughes.
“What I want to make very clear is we are not proposing to start legal action against brokers on 1 January 2021.”
However, while “nobody should be thinking ASIC is going to be running in on day one, pursuing minor or technical breaches”, Hughes emphasised the regulator will begin to seriously examine industry practices from the beginning of 2021.
“I don’t want to give false comfort. From 1 January, when we do come across brokers or practices which we think fall below the legal standards – bearing in mind this is a legal requirement set by Parliament and breaching that entails a very significant financial penalty – we will investigate and we will take action.”
For now, brokers and aggregators should continue doing what they’ve been since BID was first announced, according to Hughes.
“Over the next six months, we’d really encourage brokers to make sure they put in place appropriate record-keeping systems and procedures because it’s going to be very important down the track, particularly as we move out of a low interest rate environment, for them to be able to explain why it was that they put their clients into a particular product,” he explained.
Hughes reiterated that brokers who want to be viewed as professionals and are ready to elevate the industry as a whole have no reason not to embrace the new duty.
“We see BID as an opportunity for brokers to provide a real competitive advantage, so that there’s a race for excellence to provide the best product for their customers,” he said.
“I hope brokers embrace this duty and the spirit in which it was intended and that they will work with us to make sure it’s implemented effectively.
“If there remain any areas of grey uncertainty, we remain open and happy to hear from brokers and their associations for anything we can do to clarify them at all,” the ASIC Commissioner concluded.