The regulator has “overreached” in its interpretation of the best interests duty and should “dial back” its guidance, according to the director of a risk management service.
Last week, the Australian Securities and Investments Commission (ASIC) published its draft regulatory guide on best interests duty obligations imposed on mortgage brokers under the Financial Sector Reform (Hayne Royal Commission Response – Protecting Consumers [2019 Measures]) Bill 2019.
ASIC’s consultation paper, which is open for consultation over a four-week period, contains “high-level, principles-based” guidance around the steps a broker should take to ensure compliance with the best interests duty.
The guidance has largely been welcomed by industry stakeholders; however, some pundits, including director of QED Risk Services Greg Ashe, have expressed preliminary concerns regarding the terminology used by ASIC.
Speaking to The Adviser, Mr Ashe said he was particularly concerned with ASIC’s suggestion that compliance with responsible lending obligations under the National Consumer Credit Protections Act (NCCP) “may not be sufficient” to allow a broker to determine what credit assistance would be in the consumer’s best interests.
According to Mr Ashe, ASIC’s interpretation of the best interests duty could shift the benchmark for compliance from meeting the “not unsuitable test” to requiring brokers to recommend the “best loan possible”.
“[ASIC has] upped the ante, from not unsuitable, which was admittedly a relatively easy bar to get over, [but] now we’ve got to go over and above,” he said.
“We’ve now got this new thing called best interests, which ASIC seems to have extended [to] best product available.”
Mr Ashe stated that this is evidenced by “Example 5” in ASIC’s guidance, which suggests that if a loan application was “time sensitive”, a broker should refer their client to another credit representative if they are not accredited with a lender offering that would be perceived as a product that better suits the borrower’s interests.
“It’s a tricky one because it’s implied that it’s incumbent on mortgage brokers to be aware of just about everything in the market or at least be mindful that there are [options] out there in the market that are not available to them as a mortgage broker,” he said.
“They may have to advise their client, ‘Sorry, I can’t help you because there might be something out there that’s in your best interests’.”
He continued: “If you go to a bank branch, the branch officer does not have to know what’s going on at the other branded banks across the road and say, ‘I think they’ve got a better product; I think you should walk out the door and go over there’.”
Mr Ashe also noted that such requirements could complicate the process for brokers who identify products offered by lenders that do not operate in the broker channel.
The QED director called on ASIC to amend its guidance, claiming that the regulator has “overreached” what was intended by policymakers in forming the best interests duty.
“I think it needs to be dialled back, I think ASIC’s gone a bit too far, and we don’t know yet how the industry is going to deal with that,” Mr Ashe added.
Mr Ashe said he would consult with industry stakeholders throughout the four-week consultation process, which ends on 20 March, to develop a “consistent” industry-wide response to ASIC’s guidance.
Irrespective of the final guidance, Mr Ashe encouraged brokers to ensure that they record all client interactions as a means to demonstrating their compliance with the best interests duty.
“Always make it abundantly clear how well you knew your customer – make it abundantly clear in your file narrative the discussions that you had were particularly focused on the consumer’s requirements and objectives,” he said.
“If you want to have a robust business, you’ve got to document your client interactions, you’ve got to document them properly, and that’s what protects you from any sort of action from anyone.”
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Charbel Kadib is the news editor on The Adviser and Mortgage Business.
Before joining the team in 2017, Charbel completed internships with public relations agency Fifty Acres, and the Department of Communications and the Arts.
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