ASIC to release best interests duty report by Q4

The regulator initiated the thematic review across the mortgage broking sector to evaluate how well industry participants are complying with the law and to establish benchmarks for quality advice.

Highlighting the sector’s dominance in home lending, Kirkland noted: "When it comes to broking specifically, home lending is the largest area of consumer credit in Australia, and today 81 per cent of new residential mortgages are arranged by brokers. That's a big stake in a big market, and with our firm's responsibility, more customers means more potential for harm if things aren't as they should be, especially where borrowers are facing broader cost of living pressures."

Report timing and expectations

Addressing attendees on what the industry can expect from the forthcoming report, Kirkland confirmed the timeline for publication during a Q&A session with MFAA CEO Anja Pannek.

"We expect to have a report out in the final quarter of this calendar year, so before the end of the year," Kirkland said.

He explained that the review was conducted in two distinct phases focusing on major aggregator groups:

"The first one was gathering a bunch of data to help us understand loan flows, things like commission and clawback rates, and those just help us get an understanding of issues that we might want to look into a little bit more," he said.

"We then moved on to look at compliance processes and sort of oversight, the way in which aggregators are overseeing issues in relation to the best interest duty, and in particular having a deeper dive on complaints."

The final report will aim to provide clarity around compliance standards and highlight both strong practices and areas of concern across the industry.

"Typically, what we do with those reports... we're trying to do is be clear about the legal obligations that we're looking at to lay out our methodology, what we've observed, and what we ideally hope to be able to do is identify a range of practices," Kirkland explained.

"So we can say, here are some better practices we identify that we think are demonstrate strong compliance with the law. Here are some that raise questions or concern for us, and that's really to help people to sort of benchmark your own practice."

What 'good' BID compliance looks like

While unable to detail specific findings prior to the report's release, Kirkland outlined the regulator’s expectations for mortgage brokers under the best interests duty framework.

"We're not due to complete our review until later this year, so it's too early to talk about our observations. But while I can't talk about what we expect to see. In other words, what 'good' looks like," Kirkland said.

"ASIC expects to see mortgage brokers doing their work well, having a consistent and robust focus on quality, and where things go wrong, putting them right."

He stressed that acting in a client's best interests involves active, tailored advice rather than passive processing.

"It means recommending loans that work for your customers' circumstances and priorities, with features that they want or need, at a price that's appropriate given the other offers available on the market," he said.

"What acting in the customer's best interests emphatically does not mean simply taking orders when you know a product isn't right for them, or where there's a better deal to be had."

Kirkland also warned brokers and licensees against relying on standardised responses when documenting loan recommendations.

"When reviewing brokers' recommendations, you should take extra care to ensure the reasons given make sense in the specific circumstances for the specific client. It's not enough just to document them; they have to be personalised and meaningful,” he said.

”If the reasons for a recommendation are boilerplate factors that could apply to anyone, then it will be hard to demonstrate that the recommendation was in that customer's best interests," he warned.

Internal dispute resolution and wider industry risks

The Commissioner highlighted internal dispute resolution (IDR) as a key area of focus within the review, noting that complaint metrics serve as an early warning indicator for broader compliance failures.

However, he added: "Complaint volumes aren't the only indicator of consumer harm. There's also always a danger that complaints aren't being identified as such and dealt with as required under the law. And when they aren't, consumers miss out on important rights," he said, reminding the industry that requirements under Regulatory Guide 271 (RG 271) are legally enforceable.

Protecting against mortgage fraud

Beyond the BID review, Kirkland touched upon emerging risks facing the sector, including syndicated mortgage fraud and the operational challenges posed by artificial intelligence (AI).

“This newer and complex form of mortgage fraud involves coordinated conduct across multiple parties, in some instances to facilitate other criminal activity…

"ASIC is working closely with APRA and AUSTRAC, the lead agency on these matters, as well as with the police and major banks. We're looking to better understand what controls, frameworks, and operational settings are in place, with a focus on the roles of licensees, brokers, and referrers, as well as reminding licensees of their obligations to report to ASIC where they suspect misconduct by another licensee or representative."

He urged brokers to report any suspicious activity and to be vigilant to any potential documentation fraud.

"We encourage all industry participants to exercise vigilance. This is an evolving and serious issue, and it's in everyone's interest that it's comprehensively addressed, so as not to weaken confidence in the home lending sector as a whole.”

He continued: "I think everybody's got a responsibility from their unique perspective and role in the process to be looking for examples of any sort of misconduct, particularly involving brokers… and to be reporting it appropriately."

"So, if you're a broker, the first call should be to report it to your licensee. But you may also consider reporting it to ASIC.

”Because I think as those sorts of processes unfold, if you do end up with prosecutions, major court action, then the impression that's left with the public is that it's a much simpler message; just that there are brokers involved in fraud. And that's where it can actually have an impact on reputation and trust for everybody in this industry, including people that don't deserve to be associated with that."

He continued: "So that's why that it's really in everyone's interest to be looking at reporting earlier, because the earlier that we can get onto something (whether it's us or AUSTRAC or the AFP, or APRA) and intervene, then the less big it's likely to become, and the less likely it will be to have that sort of significant impact on trust."

Concluding his address, Kirkland called on the industry to focus on operational fundamentals for BID compliance: "I think there's an overarching theme that's really about getting the basics right. So making sure you've got the right systems to to govern the provision of services in line with obligations.

“Making sure you've got robust complaints handling processes so that people get appropriate responses if something goes wrong, and focusing on on those key risks, particularly in errors in cyber. So getting the basics right."

[Related: ASIC to release best interests duty report by Q4]