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The broker association has welcomed Treasury’s move to amend mortgage broker obligations under the design and distribution obligations regime.
The CEO of the Mortgage & Finance Association of Australia (MFAA), Mike Felton, has welcomed the move by government to amend the incoming design and distribution obligations (DDO) regime.
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Treasury announced earlier this week that it “intends to make a number of amendments to achieve its intended operation”, including to mortgage broker obligations when distributing credit products.
Specifically, it removes the need for mortgage brokers to ensure that they are distributing mortgages in line with the lender’s outlined Target Market Determination.
Instead, “more streamlined obligations” (i.e. only record-keeping and notification obligations) will apply for distributors that are held to a duty to act in the consumer’s best interests (e.g. where personal advice is provided under the Corporations Act, or where mortgage brokers engage in similar conduct).
In a video update following Treasury’s announcement of the incoming changes, Mr Felton said the association had been in discussions with Treasury to change the obligations, as it “felt it was not appropriate that there should be an additional obligation for brokers to meet” given that mortgage brokers are now held to a best interests duty (BID), “which is a far higher duty [and] takes into account personal advice based on needs, objectives, priorities, preferences”.
Moreover, he said that as financial advisers were considered to be excluded conduct, due to the personal advice they provide under their relevant BID, the same carve-out should therefore apply to mortgage brokers, given their new BID.
“Personal advice is not a concept that exists in credit law, it’s one that exists in the Corporations Act, and we couldn’t automatically avail ourselves of that personal advice carve-out with the legislation as it currently is,” Mr Felton said.
“So, we reached out to Treasury to express our concern on this problem. There’s been strong acknowledgement of the problem over an extended period of time. There’s been confirmation by them that their intent is to address it. And that the intent was in fact that mortgage brokers should be excluded conduct, due to their personal advice that they provide under the best interests duty. And they’ve also been given consideration as to how to address it.
“The problem is that the fix requires an adjustment to primary legislation,” he said.
Mr Felton outlined that, due to “the very congested legislative agenda that exists in Canberra at the moment”, the changes to the legislation will likely not pass before the implementation date of 5 October; however, he welcomed the update by Treasury to confirm its intent to remove it and consult further with industry on the amendments.
“We’re deeply appreciative to Treasury for providing the clarity on this matter by updating [the DDO] webpage.”
“So, as a result, things are a lot clearer,” Mr Felton said.
“It means that there’ll be no need for either brokers or aggregators to check if there’s a Target Market Determination in place for the product.
“There’ll be no need to take reasonable steps to distribute in accordance with that Target Market Determination.
“There’ll be no need to cease distributing if there’s a trigger event, as they refer to, or a need to report significant distribution outside of that Target Market Determination.
“[Mortgage brokers] will, however, need to record complaints about the product and report those through to the issuer at the frequency that the issuer advises.”
The MFAA CEO concluded: “This is a really good outcome that recognises the higher duty that mortgage brokers have under bid, thereby limiting the obligations under DDO.”
Given the changes only apply to those working under BID, it does not apply to finance brokers. As such, finance brokers will have the full obligations to meet Target Market Determinations when distributing relevant credit products to consumers from 5 October.
Mr Felton said the MFAA will roll out training on the DDO for both brokers next month.
[Related: Treasury to amend DDO requirements]
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