The FBAA and MFAA have both welcomed the final regulatory guide to the incoming best interests duty, which includes further detail than the draft version released earlier this year.
On Wednesday (24 June), the Australian Securities and Investments Commission (ASIC) published its regulatory guidance, Mortgage brokers: Best interests duty (RG 273), which contains ASIC’s views on how mortgage brokers may comply with the incoming best interests obligations at key stages of the credit assistance process.
Building on the draft guidance released earlier this year, the 52-page final guide is high-level, principles-based guidance but does include several examples of how the duty – which comes into force on 1 January 2021 – applies in practice.
The overarching theme of the guidance is that brokers will need to make recommendations based on the individual’s circumstances (rather than a “one-size-fits-all approach”) and provide evidence in their notes regarding the conversations and recommendations put forward to clients, and substantiate their actions.
The final document outlines that while the cost of a credit product – such as interest rate, fees and charges and the size of repayments – is a factor that mortgage brokers should “prioritise”, cost is not the only matter relevant to whether recommending a product is in the consumer’s best interests.
“Some consumers’ circumstances will mean that the benefits provided by particular features might outweigh the importance of cost,” ASIC outlined, acknowledging that some consumers will prioritise approval time and compromise on cost because of a time-sensitive transaction, such as an impending settlement date, or may value access to an offset account or the service levels and policies of the credit provider.
It therefore suggested that brokers should “exercise judgment in considering the relevance of these factors with reference to the consumer’s individual circumstances”.
Moreover, the guide also emphasises that the wants and wishes of a borrower (for example, preferring or discounting lenders or products because the borrowers has any “strongly held beliefs or preferences” about them) may not necessarily be in their best interests, and brokers should still ”reasonably consider and recommend products from these credit providers rather than exclude them from the outset”.
In the same vein, if a borrower specifically requests a type of loan (like an interest-only loan) but, after assessing their requirements, brokers find it isn’t in their best interests, they will need to make “reasonable efforts to explain to the consumer why these features may not be appropriate or may not offer good value to them”. However, ASIC states that in such cases, if the borrowers still wants to proceed after this, brokers can assist with that application.
ASIC also addresses concerns put forward by the industry regarding whether they would need to assess every product or lender in the market.
To this, it states that mortgage brokers should be accredited with a reasonably representative panel of credit providers and must be satisfied that the credit products they can access and recommend are sufficient to allow them to act in their consumers’ best interests.
However, it adds: “The number of credit providers on your panel may vary, including based on the market you operate in. For example, if you operate in a market with fewer credit providers and products, your panel may be smaller. We expect that you will use your judgement to determine whether the composition of your panel is sufficient to meet your consumers’ best interests.”
While ASIC said brokers are “not necessarily” required to recommend a specific product outside [of their] panel, should a consumer be interested in a product from a credit provider that the broker does not have access to, they should inform the consumer of this.
“If you are not satisfied that the products and credit providers you can access and recommend will allow you to act in a consumer’s best interests, you must not provide credit assistance to that consumer,” ASIC states.
“In declining to provide credit assistance, it may be helpful to refer the consumer to another mortgage broker who would be better placed to assist them,” the guide reads.
Associations welcome guidance
Both the Finance Brokers Association of Australia (FBAA) and the Mortgage & Finance Association of Australia (MFAA) have welcomed the release of the final guidance.
MFAA CEO Mike Felton commented: “While we are still working through the detail, we believe the changes have strengthened and clarified the guidance on broker obligations and the manner in which compliance with the new legislation will be assessed.
“ASIC conducted extensive consultation with industry, and we’re pleased to note that most of the key issues we highlighted as part of our MFAA submission have been addressed by ASIC in the final guidance.”
Mr Felton continued: “We acknowledge that cost must be a key element of a suitable mortgage product, but it is not the only factor. This guidance provides greater acknowledgment that other elements such as features, urgency of required approval and the customer’s credit profile can also be important factors when assessing the appropriateness of a lender and product.”
He added: “We believe the language on the broker’s panel of lenders and products is clearer, which is important as brokers need real clarity on what their obligations are when making recommendations to their customers and such obligations must be reasonable.”
The MFAA CEO concluded: “We will continue to review the guidance for any further issues or unintended consequences. In the meantime, we are focusing on finalising a Comprehensive Education Resource for our members, which will be finalised and released in the coming weeks.”
Likewise, FBAA managing director Peter White said: “Given the extensive engagement with ASIC and government in the development of the BID, we are glad to see that the final guide has now been published. This will enable us to finalise and implement the ‘101 Best Practice Guide’ that we are producing as well as the educational series which we will start to roll out from late August.
“For now, we are reviewing what has been released and comparing it to our past recommendations from the previous RG (regulatory guide) to see what has changed.
“We will make further comment once that has been completed.”
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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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