The FBAA and MFAA have tentatively welcomed new draft legislation, particularly in relation to improving broker separation processes, with several aggregators also embracing its potential to improve trust in the industry.
On Friday (31 January), the Morrison government released for consultation a raft of exposure draft legislation, which will implement 22 recommendations and two additional commitments arising from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
Among the proposals set to impact mortgage brokers is a new obligation to check references and share information on Australian credit licensees (ACL), as well as new breach reporting requirements and further measures about notifying and remediating customers where misconduct occurs.
Reaction to the draft legislation has been lukewarm so far, with several industry heads suggesting that while they welcome changes that create transparency, reduce the likelihood of bad apples entering the industry and increase trust in the sector, more detail is needed to understand how the law will apply in practice.
Speaking to The Adviser, the managing director of the Finance Brokers Association of Australia (FBAA), Peter White, commented that while it was still “early days” – and the consultation process had only just launched (running until 28 February) – he welcomed the formalisation of reference checking for mortgage brokers.
Mr White elaborated: “The reference checking is an interesting piece. The regulator spoke to me about this before Christmas as it being a potential resolution to the separation letter issues that are hitting the marketplace – and we’ve absolutely got to get to a point of transparency around separation letters. So, potentially, the whole manner around reference checking could be it.
“Reference checking is a good thing and, if we get it right (and depending on the regulatory framework that sits around that), it could be an answer to that conundrum on separation letters,” he said.
However, Mr White added that the “devil is in the detail”.
“We need something that makes logical sense, that works for the necessities of the royal commission and that practically delivers something that doesn’t actually fire an inappropriate arrow at someone,” the FBAA head said.
“It’s one thing to say you have to do reference checking and breach reporting, but we need to understand how that data is going to be used. The real question is: How much detail are they looking at and how far does it go? What does that look like scoped out? I think we’ve got to make sure that is a fair and balanced approach that is taken to meet the desired need,” he said.
“It could be a bit of overkill if you register something [with ASIC] that ends up being nothing once it has been investigated. While such a matter should be recorded, how will that data be used? Will it be released? This is where we need to sit down and work through the detail because we want to ensure that data isn’t leveraged in an anti-competitive manner.
“There’s a whole host of things that sits underneath this, so we need to work through this and understand its full ramifications and consequences, intended or otherwise,” Mr White told The Adviser.
The chief executive officer of the Mortgage & Finance Association of Australia (MFAA), Mike Felton, also stated that there was a “significant amount of detail to work through”, but echoed that “these reference checking and reporting of misconduct reforms are also likely to result in an improvement in broker separation processes, which currently lack transparency, consistency and procedural fairness”.
Mr Felton also suggested that the proposed reforms could have the effect of “controlling the movement of those responsible for misconduct between industries and licensees, as well as improving the investigation, reporting and remediation of misconduct”.
Mr Felton said: “The compliance impact to meet the proposed legislation is likely to be substantial and take time to implement. However, the reforms will result in greater transparency, improved reporting and management of non-compliant behaviours and increased trust and confidence in the mortgage broking industry.”
Aggregators, who will be impacted by the new reforms for Australian credit licencees, have also welcomed the sentiment behind the draft legislation.
Connective director Mark Haron told The Adviser that while it is “important that we have good background checking on brokers (or anyone in the financial services industry for that matter) and that any breaches are reported and people who are doing the wrong thing or removed from the industry”, there were some concerns relating to the extent to which the breaches will be investigated.
Mr Haron explained: “Some of the concerns we have is around determining whether a broker has actually done anything wrong. For example, if an application has a false payslip on it or document on it, that doesn’t necessarily mean that the broker is implicated in that.
“If they’ve gone through the processes and checked things as diligently as they can [but a document turns out to be fraudulent], would a lender terminate a broker because there’s a false pay slip on there, even without it being the broker’s fault? The consequences of that would be pretty dire.
“So, we want to understand to what extent [the new laws apply] and ensure that if someone is deemed to have breached their obligations, that the investigation is investigated fairly,” he said.
“There could be reported breaches where it has not been the broker’s fault and, in those cases, we have to make sure that brokers are protected,” Mr Haron added.
The Connective director added that there also needed to be a “better protocol as to what the breaches are and what sort of investigations need to be completed”.
Loan Market response
Loan Market’s new chief compliance and regulation officer, David McQueen, also spoke to The Adviser about his thoughts on the new laws under consultation, stating: “At first glance, the government’s proposed changes will be another competitive advantage for brokers. As with the introduction of best interests duty, the draft regulations will build even more trust between brokers and customers as they’ll know – by law – that their broker is held to the highest standard.
“If this draft legislation is implemented – in consultation with the broker industry – it will strengthen our value proposition in the eyes of the customer.”
He continued: “Any legislation that creates transparency and increases guidance for aggregators and brokers is positive. Our whole proposition at Loan Market is for our brokers to exceed customer expectations and to empower everyone to make smarter financial decisions, any legislation that supports this mantra and brings consistency across the industry, we would warmly support it.”
However, the chief compliance and regulation officer said it is “extremely important that we mitigate any possible adverse outcomes for brokers who are doing the right thing – which is the overwhelming majority of our industry”.
While Mr McQueen concluded: “We need to give consideration to the processes and steps already in place. We will be taking the time to review the legislation and draft our response.”
More to come.
Annie Kane is the editor of The Adviser and Mortgage Business.
As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts.
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