Several aggregator heads have marked the passage of the Financial Sector Reform (Hayne Royal Commission Response – Protecting Consumers [2019 Measures]) Bill 2019, but concerns still remain.
On Thursday (6 February), the Financial Sector Reform (Hayne Royal Commission Response – Protecting Consumers [2019 Measures]) Bill 2019 passed both houses after being read for a third time.
The bill implements recommendations 4.7 and 4.2 of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry by amending the National Consumer Credit Protection Act 2009 (Credit Act) and the National Consumer Credit Protection (Transitional and Consequential Provisions) Act 2009 (TCP Act).
The obligations apply in relation to credit assistance provided by mortgage brokers in relation to any credit contract and will:
- require mortgage brokers to act in the best interests of consumers; and
- address conflicted remuneration for mortgage brokers.
While the heads of the FBAA and MFAA have voiced that further work may be needed on explanatory materials and upcoming ASIC guidance to provide greater clarity and reduce unintended consequences, several aggregator heads have largely welcomed the new bill.
Mark Hewitt, AFG’s general manager, industry and partnership development, commented: “Our discussions with government and the regulators over time have made it very clear that disclosure is vital. And that doesn’t just mean disclosure of the commission earned, it means helping customers understand exactly the value [brokers] deliver by being able to compare multiple lenders and demonstrate the understanding of [broker] customers’ unique circumstances. [Broker] value proposition is exactly that.”
Mr Hewitt stated that AFG had introduced a one-page summary sheet at the front of the credit proposal used by AFG credit reps (and available for AFG ACL holders to use) to help brokers meet their new best interests obligation.
David Smith, Aussie’s chief customer officer, welcomed the passage of the duty through the houses, adding: “Fundamentally, the best interests duty will build even greater customer trust that their broker is being held to the highest standard. These new standards are positive for customers, brokers and the industry.
“Aussie has been at the forefront of consultation with the government and played an active role in considering how the new regulation can shape the broking industry of the future.
“We appreciate government’s willingness to work with industry on these reforms to protect consumers while maintaining strong competition in mortgage lending,” he said.
The executive director of Connective, Mark Haron, told The Adviser: “There have been some important amendments to the legislation to ensure a level playing field for all brokers in the residential lending space. This legislation is part of the overall package to protect the existing broker remuneration structure.
“We’ll continue to work in consultation with the industry and the government, ASIC and Treasury on the regulatory guidelines to ensure a good outcome for brokers and their customers.”
Speaking to The Adviser, Loan Market’s executive chairman, Sam White, said it was “pleasing to see that we now have clarity on when this bill will come into effect, giving us a cemented roadmap to work towards”.
"We are now looking to the regulators for further clarity on the bill and would warmly welcome the opportunity to work with them,” he added.
“There is no doubt in my mind that the vast majority of brokers are operating in the best interests of their customers already and I believe no one needs to change their DNA to comply with this new law.
“What brokers do need to do is to translate what’s currently in their heads or on notepads into a file that enables anybody to see that the broker has complied with, both the spirit and the letter, of this new law,” he said.
“This means process changes and changes to how we record our interactions with our customers.”
Mr White added that Loan Market is in the middle of a national roadshow explaining how Loan Market is delivering this to broker members.
“Our view is rather than layering new paint over old cladding, we need to strip back and take this opportunity to redesign our processes so that brokers can safely comply with the new law while also increasing their efficiency,” he said.
“If we can get this right and brokers can incorporate these processes into their businesses, there is a wonderful opportunity for brokers to say to customers that they can choose us – who are legally obligated to operate in the clients’ best interests – or they can choose to deal with the branch bank manager who is obligated to operate in their employees’ best interest.
“We all have much work to do over the coming months to be prepared for the changes, and Loan Market is committed to having 100 per cent of our network – business owners, loan writers and customer service managers – trained and safe come July 1, 2020,” the Loan Market head concluded.
Speaking on behalf of PLAN Australia, CEO Anja Pannek said: “We believe the best interests duty will bring the best of broking to life and bring into law the value that brokers can uniquely offer their customers for one of their most important decisions they make for their family and future.”
However, Ms Pannek added that it was “critical that we await regulatory guidance on best interests duty”.
“PLAN Australia will be working with ASIC in conjunction with the MFAA and fellow aggregation groups. Industry discussions are a key element of identifying what best practice looks like in relation to best interests duty,” she said.
Ms Pannek added that the aggregator has “started thinking about the design of Podium Reimagined, a platform that brings the best-in-class compliance to life” and will be launching webcasts and PD days relating to regulatory changes to help broker members prepare.
“As the president of the MFAA Aggregator Forum, I will be ensuring the industry continues to work collaboratively for the benefit of all brokers and their clients,” she said.
“The best of broking is intrinsically linked to good customer outcomes, which are about offering choice, clarity of process and broadening awareness that there is more to a mortgage than price,” Ms Pannek concluded.
Speaking to The Adviser after the revelation that Smartline will become the sole brand for REA Group’s broker offering, CEO Sam Boer said that the reforms “have the right intent, which is to deliver better consumer protections and make sure that the industry is putting the client’s interests first and foremost, all of the time”, but added that there remain “operational challenges” that will continue to be debated.
“I’m looking forward to seeing the regulatory guidelines coming off the back of this as well. I think they will need to be out sooner, rather than later, so we can really start to schedule the work we need to do,” he said.
“Smartline is at the industry table, speaking to government,” he said, “and of course, we’re in front of our people, preparing them for what is going to be the new normal.”
“And a lot of it is around documenting, having the right reporting in place and just being transparent.”
Mr Boer concluded: “Smartline’s goal in this area is to set the benchmark. We want to set the benchmark when it comes to standards and professionalism. We’ve always held ourselves to high standards. And that’s always been Smartline’s reputation within the industry.
“I think we’re really well positioned with our network, and we have been communicating with our brokers every step of the way,” he told The Adviser.
“We think there’s an opportunity to continue and further that, which I think is exactly what needs to be done. We’ll work through the challenges and we’ll do it together.”
The industry is still awaiting guidance regarding the government’s proposals from the Australian Securities and Investments Commission, which was initially expected in late 2019.
The heads of the FBAA and MFAA have also outlined their thoughts on the best interests duty, as per the Financial Sector Reform (Hayne Royal Commission Response – Protecting Consumers [2019 Measures]) Bill 2019, which you can read here.
[Related: Best Interests Duty Bill formally passed]