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Compliance

ASIC open to providing further BID guidance, if necessary

by Annie Kane8 minute read

The regulator is open to providing further guidance or explanation on the best interests duty in future, should the broking industry request it, commissioner Sean Hughes has suggested.

Following the release of the final version of regulatory guidance relating to the incoming best interests duty for mortgage brokers, ASIC commissioner Sean Hughes told The Adviser that the regulator was keen to keep communication channels open with industry, including by providing further clarity and guidance where necessary.

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Speaking to The Adviser, commissioner Hughes noted that ASIC had amended the contents of the draft guidance following consultation with industry, adding that the regulator would continue to ensure its guidance was current.

“What we tried to do is make the guidance as contemporary as possible. So, you will see from the version of the draft guidance that we released in February to the version that we released [last] week, we’ve obviously added some additional working examples. We’ve taken those from contemporaneous situations that we’re seeing out there in relation to government support programs for customers who may be affected by the [COVID-19] pandemic and also in relation to the cashback offers that a number of the large banks are offering at the moment to secure refinancing. So, we think that providing contemporaneous examples is probably the best way to see how this might operate in real life.”

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Mr Hughes added that the main changes between the draft guidance and final guidance focused on: advice in relation to products on panel, the position of mortgage managers, and record-keeping obligations and how long they would last for.

“The principal [change from the draft guidance] was really around this question of whether brokers need to go off panel and recommend to their customers that they need to look for a product that they can’t recommend to them because it is not on their panel of providers. That was something that was put to us very early on in the consultation process,” he said.

Indeed, in the final guidance, ASIC says that brokers are expected to “use [their] judgement to determine whether the composition of [their] panel is sufficient to meet [their] consumers’ best interests.”

While it states that brokers are “not necessarily” required to recommend a specific product outside [of their] panel, it warns that – should a consumer be interested in a product from a credit provider that the broker does not have access to – they should inform the consumer of this.

“If you are not satisfied that the products and credit providers you can access and recommend will allow you to act in a consumer’s best interests, you must not provide credit assistance to that consumer,” ASIC states.

Mr Hughes told The Adviser that the feedback so far suggests that “most commentators think that [it has] picked up on all the major issues” ASIC has control over, adding that the regulator would keep monitoring how the regime works once it formally starts on 1 January 2021.

“If there are particular compliance issues, or if there’s any uncertainty in terms of the application of the law, then obviously we will look to address those in real time,” Mr Hughes continued.

“If that means that we need to provide further guidance with the benefit of experience – say, this time next year – or whether in fact any of the law needs to be changed, that’s something that we do as part and parcel of our job anyway. So, this is not a set-and-forget approach to providing guidance. We have provided the guidance for now, [and] we think that we’ve given the broking community a sufficient period of time to read, to understand, to prepare and get their systems and processes ready to go for 1 January. 

“But, as I say, if there’s more that we can do in terms of further explanation, or guidance or suggestions, we’re always happy to hear from the community of brokers because we certainly hear from people when they’re critical of us. But we’d also like to hear from them if they say something is working well,” the ASIC commissioner added.

What brokers should remember

Mr Hughes concluded that there were two main points he hoped brokers would take away from the guidance.

He explained: “The first is this overriding principle of putting your customer’s interests first and foremost, above everything else. 

“I think that was a large part of why commissioner Hayne made the recommendations he did… to ensure that when somebody comes to a broker, they have absolute confidence that whatever suite of products is put in front of them... the recommendations about those products are untainted, and not influenced by any other factor. That it is purely about the customer’s best interests. That’s the first thing, and I think most brokers absolutely get that,” he said.

“The second thing, which is perhaps a more procedural issue, is that we have seen a great variety in terms of the quality of record keeping and note taking that brokers have been traditionally taking,” Mr Hughes continued.

“What we don’t want to see is – down the track (say five or six years’ time) and particularly if the loan is not performing – for there to be an argument by the customer against the broker to say: ‘Well, you put me into this product, it wasn’t suitable for me, why would you do it?’ And then we get into horrible situation, where you’re having a contest of court with differing recollections and there being no record of who said what to whom. 

“So, I think this is a great opportunity, during this six-month period before the formal compliance date of 1 January, for brokers to get their record-keeping systems up and running, to polish them off.”

He concluded: “Indeed, throughout the next six months, because [brokers] know it’s coming, for any recommendations that they are making now, they really should be making sure that they are written and stored and easily retrievable.”

The ASIC commissioner later told The Adviser that he believed the best interests duty obligation and ASIC’s guidance around it would help bolster the industry’s reputation.

He concluded: “If implemented well and if brokers do a good job of this, [this] will absolutely cement in the minds of Australian consumers that brokers are professionals. And there should never be any question about that.”

You can listen to the highlights of the interview with Sean Hughes here and tune in to The Adviser’s podcast, released on Tuesday afternoon, to hear the full interview!

[Related: ASIC on the best interests duty guide]

ASIC open to providing further BID guidance, if necessary
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Annie Kane

Annie Kane

AUTHOR

Annie Kane is the editor of The Adviser and Mortgage Business.

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