ASIC reveals BID review’s next steps and findings

The regulator sent compulsory notices to about six national aggregators, asking for details on broker files, commission arrangements, complaint processes, and supervision practices. ASIC commissioner Alan Kirkland noted at the time that significant breaches could lead to further steps, yet stressed that the exercise was focused on gathering evidence, as opposed to unearthing widespread misconduct.

How ASIC gathered the data

Bourne explained that ASIC took steps to limit the workload on participating firms, while ensuring the information would be useful and comparable.

He said the regulator began by reviewing its own existing data sources, such as reports of misconduct, breach notifications, and complaints data from the Australian Financial Complaints Authority.

After identifying gaps, ASIC then worked closely with aggregators to understand their systems and determine the most relevant datasets.

Bourne said this involved sending out data dictionaries – detailed guides defining exactly what each piece of information should cover.

“A data dictionary gives the baseline to say, well, when we are asking for this data point, what does that mean? So there is an explanation to it, and then we have a discussion with the entities... to make sure that they are interpreting it the same way.”

Due to the fact that the aggregator collects and stores data differently, he said ASIC then held discussions to refine requests and permit close alternatives where exact matches were difficult to extract.

“It does sound quite technical, having [data dictionaries], but it's actually quite a practical way to get a way of working, that everyone is talking from the same page,” Bourne said.

Main areas of focus

Bourne revealed that ASIC had been examining samples of product recommendations made by brokers – along with file notes detailing why certain loans were chosen, especially when they were not the lowest-cost option.

The regulator then analysed how aggregators monitored and supervised their brokers.

Thirdly, it reviewed complaint handling and internal dispute resolution processes and also collected information on remuneration structures to examine potential conflicts of interest.

When asked about the responsibilities of licensees and aggregators in overseeing brokers, Bourne emphasised the importance of strong supervision systems.

“It is really conducting that monitoring and supervision program in a robust way,” he said.

“What we have seen through our discussions with the entities that have been part of the review is a real improvement program over time of implementing strong, robust systems to be able to do that.”

While acknowledging the challenges of handling substantial amounts of data, he pointed to clear progress in technology and processes.

On complaints, Bourne connected the review to ASIC’s ongoing work in that area and referenced previous findings from the insurance sector, where one in six complaints were not properly identified.

“You have got to identify the complaint early and correctly up front,” he said.

“So then you have that longevity with a client over time, rather than just losing them to other competitors, for example, and it potentially results in worse consumer outcomes by not recognising that upfront.”

What ASIC expects to see

Despite stressing that ASIC received the majority of the data in mid-December and was still processing the bulk of its contents, Bourne said for product recommendations, brokers needed strong documentation explaining their choices, particularly when suggesting higher-cost options.

He stressed that these were momentous financial decisions for clients, often made under stress, and that records needed to demonstrate careful consideration of alternatives.

"So the arguments for presenting certain recommendations, if it wasn't the lowest cost option, what are the factors that support that?" he said, adding ASIC was getting a sense of whether the broker has been working well with their client,

He added that supervision programs should use data effectively to spot unusual patterns in recommendations, complaints or payments, and feed insights back into training and education.

"Also, on the monitoring and supervision, you could also take that into things like complaints, the internal dispute resolution, or even the remuneration flows – so what we'd expect is to see quite a lot of systems to see if there are any outliers and continually make sure that baseline is being met."

Possible outcomes

Bourne provided a roadmap moving forward and said the regulator would either issue a media release or produce a short-form report highlighting strong and weak practices across the industry.

“It could just be a media release if the findings are very tight, and we just wanted to put out a fairly quick statement in that regard, or we might go with a brief report, which gives a bit more context to what our expectations are.”

The ASIC leader added: “There are some really good, better practices across the industry, and you might have poorer practices, which we also call out, and so what we're trying to do is get everyone to a better platform.”

He said ASIC had already shared initial feedback with participants and could send detailed findings letters to individual firms following the review’s completion.

Yet he added that more serious issues could lead to widespread enforcement action.

“If we find things that we think are particularly problematic, then our reactive surveillance and enforcement teams may get involved,” Bourne stated.

In closing, he returned to fundamental requirements and said brokers needed to ensure they were following “basic compliance foundations”.

“The record keeping and the recommendations and why the recommendations are being made, that is quite paramount,” Bourne said.

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