The effectiveness of ASIC’s new guidance will be contingent on its interpretation by lenders, broking industry associations have said after welcoming the update.
Following two rounds of public consultation, the Australian Securities and Investments Commission (ASIC) published an updated guidance (RG 209) on the responsible lending obligations that are contained in the National Consumer Credit Protection Act 2019.
The new guidance is designed to provide greater clarity and support to lenders and brokers in meeting their obligations, particularly in light of uncertainty that arose following the banking royal commission.
As anticipated, ASIC has maintained principles-based guidance, which the regulator has said would “support flexibility for licensees”.
Both the Finance Brokers Association of Australia (FBAA) and the Mortgage & Finance Association of Australia (MFAA) have welcomed the new guidance.
MFAA CEO Mike Felton told The Adviser that the association is confident the new guidance would provide the industry with “greater clarity”.
“We are hopeful that the release of the amended guidance will also provide some much-needed certainty and greater consistency in the way lenders are treating both the assessment of expenses and the use of HEM, which in the recent past has created complexity and an extension of approval turnaround times.
“The mortgage broking industry is reliant on referral business and the customer outcomes it produces, and we welcome the enhanced guidance as we seek to continually improve lending outcomes for consumers.”
FBAA managing director Peter White added that the publication of the new responsible lending guidance would be part of a broader pipeline of regulatory work designed to improve outcomes for financial services customers.
“Compliance obligations will always continue to be reviewed, and these clarifications are made to adapt with the ever-changing world of consumer protection,” he said.
“Regulation policies are constantly revised, and there is nothing that we can change when it comes to ASIC updating the guidelines on responsible lending conduct, although greater clarity for something that is not particularly prescriptive is always helpful.”
However, Mr White warned that the application of ASIC’s new guidance would depend upon the response from credit providers, who he has urged to refrain from further tightening their policies.
“We trust this doesn’t come as an excuse for banks to tighten credit more than they have already, as I don’t think the government would want to see further tightening of credit in the residential sector or the business sector for that matter,” he added.
“It is important to understand that these updates aren’t changes to the law, but further guidance on the current law. If there was any ambiguity around lending guideline previously, then the RG 209 update should give more clarity.
“The most important aspect to watch going forward will be how the lenders interpret these updates.”
ASIC’s new responsible lending guidance comes just weeks after the Morrison government tabled the Financial Sector Reform (Hayne Royal Commission Response–Protecting Consumers (2019 Measures)) Bill 2019, which seeks to impose a best interests duty on mortgage brokers and a ban on “conflicted remuneration”.
More guidance around how the best interests duty applies in practice is expected to be released by ASIC before the end of the year, which stakeholders have said would be “almost as crucial as what’s in the legislation”.