A senior manager at ASIC has confirmed that the regulator will launch a public consultation on its draft guidance around the new best interests duty for brokers ahead of the commencement of the law next year.
Speaking at the FBAA ‘Challenge the Future’ conference in the Gold Coast on Friday (8 November), Richard McMahon, a senior manager in the Credit, Retail Banking and Payments division at the Australian Securities & Investments Commission (ASIC) revealed that the regulator will release guidance around the upcoming law requiring mortgage brokers to act in the ‘best interests’ of their clients.
Government had consulted on the draft National Consumer Credit Protection Amendment (Mortgage Brokers) Bill 2019 earlier this year and a final version of the legislation is expected to be released in due course ahead of its commencement in July 2020.
Acknowledging that there are many complexities around establishing what is ‘best’ for a customer, the ASIC senior manager told FBAA members that the regulator will be releasing guidance around the best interest duty to provide clarification.
This guidance will be open for public consultation before it is finalised, he added.
Mr McMahon said: ‘As you'd be well aware, some of the key reforms for the credit industry include the mortgage broker best interests duty.
“Treasury has published an exposure draft bill and regulations to give effect to that duty and we - along with other stakeholders - recently attended some roundtables to discuss how that duty could operate and where there were issues with the draft laws [which are] set to commence in July 2020.
“ASIC is committed to providing guidance on the best interest duty, and to conduct public consultation around that draft guidance before it is finalised, ahead of the commencement of the duty.”
Mr McMahon went on to acknowledge some of the issues of proving that a broker is working in the best interest of their client.
He said: “We're considering our guidance about what acting in someone's best interest means and that raises some really important, difficult questions.”
He suggested that these “important, difficult questions” include: “What does ‘best’ mean to you? What if a product is not on your panel? Or you're not accredited? Or it's 91 days [to settlement]? And does ‘best’ mean ‘lowest cost’? [Perhaps] not always.”
Touching on the conundrum of being required to act in the best interest of their client while not being able to offer every single product from every single lender in the market [due to the sheer size of the mortgage market and the fact that aggregators do not have every lender on panel, nor do brokers necessarily have accreditation with every lender on that panel], Mr McMahon said it was “one of the key issues that [ASIC is] thinking about”.
Answering a question from the floor around this topic, Mr McMahon noted that ASIC has not finalised its guidance on this area but suggested that should an aggregator panel or broker’s access to products be “sufficiently diverse and wide, then, potentially this could be less of an issue in that respect".
"But this is a really good question and it's one that we hope to address directly in our guidance," he added.
He concluded: “So, there's a range of really important questions that we recognise that you have and others in the industry will have, so we’re going to provide some guidance.”