The two main broking associations have given notice to the broking sector to expect further intense scrutiny and compliance requirements in 2020.
The Mortgage & Finance Association of Australia (MFAA) has warned the broking industry to prepare for continued intense regulatory scrutiny in 2020 and the years ahead, and the unintended consequences that may flow on from legislation and regulation.
Speaking to The Adviser, chief executive Mike Felton said the most pressing risk for the broking industry is the potential for unintended consequences resulting from the upcoming best interests duty.
The MFAA lodged a submission on the draft bill in October 2019, outlining the concerns the association held over the best interests duty, including its potential to translate into a legal requirement that brokers must provide the “best” or “most appropriate” product or assistance to ensure the “best outcome” or “cheapest price”.
“Such terms are highly subjective descriptions and do not provide useful guidance as to what the ‘best’ outcome actually is for a given customer or indeed what is in their best interests,” the submission said.
In late November, the updated best interests duty bill for mortgage brokers – the Financial Sector Reform (Hayne Royal Commission Response-Protecting Consumers (2019 Measures) Bill 2019 – was tabled in Parliament, outlining the role brokers need to take when helping a borrower from 1 July 2020.
In the bill, the federal government enshrined a ban on the payment of conflicted remuneration, which includes volume-based and soft-dollar remuneration, in line with the Combined Industry Forum’s (CIF) reforms.
The federal government previously announced it would delay consideration of a borrower-pays model until after a review has taken place in 2022.
“We have another regulatory review scheduled for 2022, which again puts our industry at a transition point,” Mr Felton said.
“The MFAA will continue conducting regulatory consultation and advocacy activities on the draft legislation in 2020 to ensure the final legislation appropriately matches the government’s policy position with regards to the best interests duty and broker remuneration.”
Peter White, managing director of Finance Brokers Association of Australia (FBAA), also told The Adviser that one of the main themes of 2020 will be compliance to the best interests duty.
He also said the industry will need to focus on reporting obligations and greater transparency across remuneration and ownership.
“The FBAA will continue with the rest of the extensive regulatory work that barrages our sector, and we will continue to meet regularly and build relationships with both sides of politics to protect the future of our members,” Mr White said.