Uncertain transition for broker licensing

The first guidance package released by ASIC aims to assist businesses comply with the new licensing laws, which come into force on 1 July 2010.

The new credit laws will impose licensing and compliance obligations on mortgage brokers and lenders, as well as give ASIC new enforcement powers.

Gerard Tiffen, principal of Canberra brokerage Tiffen & Co and The Mortgage Detective, says that brokers are certainly aware of the impending regulation as there has been “substantial discussion” in the industry for some time.

“The majority of brokers understand the basic framework moving forward,” Mr Tiffen says. “I believe that most brokers have been operating under a regime of self regulation for several years, [but the new laws] will enable a smoother transition come implementation,” he says.

If you act as an intermediary between a borrower and a lender, such as a broker, introducer, mortgage manager or aggregator, you will be affected by the new regime and will need to register with ASIC before 30 June 2010.

Brokers, introducers, mortgage managers and aggregators will also need to either apply for an Australian credit licence or become a representative of a licensee.

SECURING A LICENCE

According to Mortgage Choice’s chief executive officer Michael Russell, brokerages have been generally proactive in aligning themselves with the new licensing laws.

“We don’t see the new licensing laws causing any real concern for us, I feel that we are ready to embrace the changes,” says Mr Russell.

However Mr Tiffen feels that the licensing requirements are still causing confusion for many independent brokers.

“The main concern for brokers at the moment is that there is no clear definition of the licensing requirements. It is still unknown whether an individual broker will need to be licensed or whether they can operate under their aggregator’s licence,” Mr Tiffen says.

While it is anticipated that brokerages will obtain a credit licence on behalf of their brokers, aggregators tell a different story.

“Many aggregators will encourage their brokers to get their own Australian credit licence once the new laws start,” Connective principal Mark Haron says.

“Unfortunately, the cost and risk associated with ASIC’s ongoing compliance and audit requirements will be too rigorous and expensive for many aggregators to bear, particularly aggregators having a large number of independent brokers,” Mr Haron says.

“I expect that aggregators who do authorise brokers to work under their credit licence will ultimately have to pass their compliance costs onto the brokers,” he says.

GETTING PREPARED

ASIC Commissioner, Dr Peter Boxall, has urged businesses to start implementing the changes now, including becoming a member of an ASIC-approved external dispute resolution (EDR) scheme and conducting due diligence of all officers, business partners and trustees.

“It is important for people to prepare themselves at the earliest opportunity to ensure a smooth transition to the new regime,” Dr Boxall said.

Mr Haron says that brokers have prepared for the changes to some extent already.

“Many brokers and businesses belong to the MFAA. Therefore, due diligence has already been conducted as a part of MFAA’s membership requirements,” Mr Haron says.

“As an MFAA member we are not overly concerned by the compliance obligations under the new credit laws,” Mr Haron says.

The real test for brokers and aggregators, Mr Haron believes, will be in satisfying ASIC’s ongoing compliance and audit requirements, which are still quite vague.

“Some brokers will need to revise their business systems to ensure they keep adequate records for audit purposes.”

“The problem is that we don’t yet know what ASIC’s audit requirements are, and that is a real concern for brokers,” he says.

COUNTING THE COST

The cost impact for brokers will be “one off” registration and licensing fees, as well as costs incidental to compliance, including minimum insurance requirements, due diligence, training and supervision, and EDR membership registrations.

While these costs may force some independent brokers to consolidate to share the overheads, Mr Haron doesn’t think that the financial impact will be significant.

“Licensing fees at about $450 a year will be manageable for most brokers,” he says. “As for compliance, MFAA members generally have due diligence systems already in place, so I don’t think that the costs of implementing the new laws are a huge concern for many brokers.”

Despite the costs, the government’s view is that any pain felt by brokers will ultimately increase their client proposition as well as solidify the profession.

“[While there are] some potential additional compliance costs for industry participants, this outcome is expected to deliver greater net benefits for consumers particularly over time, through overall improvements to standards of industry behaviour,” the explanatory memorandum to the new credit bill says.

Mr Tiffen agrees, saying that at the end of the day, regulation within the mortgage industry will certainly be an advantage from both the consumer’s and mortgage professional’s perspective.

“It will raise the professionalism of the industry and ensure full disclosure and transparency within the transaction – this can only be a positive,” he says.