Specialist Finance Group has said the issue around financial abuse declarations has taken a “major step” forward after an insurance provider confirmed that brokers are covered for it under their PI insurance.
The boutique aggregation company had previously acknowledged and echoed the industry concerns around new lender requirements that would require the industry to look out for financial abuse victims when dealing with clients.
As of 1 July 2019, the Australian Banking Association’s (ABA) new Banking Code of Practice has come into effect, bringing in a higher standard of customer care when dealing with individuals and small-business customers – particularly vulnerable customers, co-borrowers and guarantors.
Given that nearly 60 per cent of mortgages are now written by the third-party channel, lenders are also now updating their broker forms to ensure that brokers are aware of these new requirements – and, in some cases, asking them to complete a financial abuse declaration form.
While discussion between the ABA and the mortgage industry is ongoing about the propriety of such a responsibility being placed on the third-party channel, the broking industry has recognised the need to protect vulnerable customers but warned of the potential legal, financial and risk burdens this requirement could bring brokers.
Both the Mortgage & Finance Association of Australia (MFAA) and the Finance Brokers Association of Australia (FBAA) had previously urged their members not to sign declaration forms associated with vulnerability assessments for mortgage customers, warning that brokers may face litigation if they “get it wrong”.
SFG also previously told its members that interim legal advice had suggested that requiring brokers to report suspected financial abuse to lenders could be a breach of the broker-customer relationship and may raise privacy issues.
Further, it warned, advice provided had also suggested that because ascertaining financial abuse is not covered under the occupation of a mortgage broker, it may not be covered under a broker’s Professional Indemnity (PI) insurance policy.
However, SFG managing director William Lockett has since welcomed a “major step in resolving this issue”, following advice from an industry insurance provider.
In a letter to SFG broker members, Mr Lockett wrote: “A key aspect of our communications have been the uncertainty of mortgage brokers signing the financial abuse declarations and potentially not being covered through their Professional Indemnity insurance policies.
“Specialist Finance Group is now pleased to confirm the following advice provided to us today by Scott & Broad.
“We can now confirm the signing of a financial abuse declaration (for lenders) by or on behalf of the insured in their capacity as a mortgage broker is covered under their Professional Indemnity insurance policies under the Scott & Broad Mortgage Broker Scheme. Cover is subject policy terms and conditions.”
According to the SFG head, Scott & Broad advised that one of the reasons they had been able to confirm this cover for mortgage brokers was “on the confirmation of the MFAA’s commitment to develop and launch a training course for their members to assist in the identification of any financial abuse”. (Further details of the training module, being developed in conjunction with the ABA, are expected to be released in due course.)
“This training and other industry-related training will also be fully supported by SFG and it will be a requirement for all SFG members to undertake on an ongoing basis,” Mr Lockett said.
“Therefore, all SFG members who have a current and valid PI insurance policy with Scott & Broad Mortgage Broker Scheme, you are covered in relation to the signing of financial abuse declarations,” he added.
SFG has advised that any members who hold current PI insurance policies with a provider other than Scott & Broad would now need to provide the aggregator with “written confirmation” from their insurer to confirm that they are covered in their capacity as a mortgage broker and in relation to the signing of financial abuse declarations.
“I have no doubt that the above update is another major step in resolving this issue that has affected many members and we thank again all of our members and industry partners for both their input and patience,” Mr Lockett said.
Speaking to The Adviser, Martyn Simmons - an authorised representative at Scott & Broad - said that while he was happy that the industry would be developing training courses for brokers on identifying financial abuse, he urged the banking industry to ensure that any additional compliance changes are made in consultation with the broking and insurance industries.
Highlighting that the financial abuse changes were "done without very much consultation" and were being brought in just ahead of the end of the financial year (one of the busiest times of year for the finance and insurance industries), Mr Simmons revealed that Scott & Broad only heard about the new requirements around one week before they were due to start.
He said: "Obviously, consultation would really be appreciated. Brokers seem to be getting a lot more requirements for compliance placed on them and it is important that people think of the implications for the PI. It shouldn't be an after thought."