The industry should focus on “preventing and penalising” broker misconduct rather than imposing a new legal obligation, the Law Society of NSW has said.
In its submission to Treasury, released following the publication of the draft best interests duty bill, the Law Society of NSW has questioned the practicality of the proposed reforms.
The association raised concerns regarding the lack of guidance around the definition of best interests in clause 158LA of the draft bill, which was left unchanged in the revised bill tabled in Parliament last month.
“There is no definition or guidance on what ‘best interests’ means in clause 158LA of the bill,” the Law Society noted in its submission.
“We suggest that further guidance be provided.”
The group cast doubt over the applicability of the clause in the provision of credit assistance by brokers, which, it noted, do not have access to the full suite of products offered to borrowers in the marketplace.
“On a plain English reading, brokers will need to seek out the best possible option for a consumer in all the circumstances,” the association added.
“The practical impact of the requirement may be somewhat artificial in any case, as brokers generally do not have access to all lenders and all products, and brokers are likely to still conduct their analysis based on their lender panel.”
As a result, the Law Society has proposed an alternative to the best interests duty, which it claimed would incentivise brokers to deliver good outcomes for borrowers without having to commit to complying with a new legal obligation.
According to the association, the industry could consider imposing stiffer penalties for breaches of existing responsible lending obligations under the National Consumer Credit Protections Act (NCCP).
“We acknowledge that the government has announced that it will implement recommendation 1.2 of the final report of the financial services royal commission,” the Law Society stated.
“In our view, however, reforms could be made in the industry with a focus on preventing and penalising broker misconduct i.e. conduct to the consumer’s detriment, rather than simply creating a new positive statutory duty.”
Under existing arrangements, a breach of NCCP incurs a maximum penalty of 2,000 penalty units, while a breach of the government’s proposed best interests duty would incur a penalty of 5,000 penalty units.
More guidance around how the best interests duty applies in practice is expected to be released by ASIC before the end of the year, which, stakeholders have said, would be “almost as crucial as what’s in the legislation”.
[Related: White label revenue at risk, warns NAB]