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The “writing is on the wall” for brokers unwilling to adapt to new best interests duty obligations, according to the director of a risk management firm.
Earlier this week, the Australian Securities and Investments Commission (ASIC) published Regulatory Guide 273 Mortgage brokers: Best interests duty (RG 273) – guidance aimed at assisting in the application of the new best interests duty (BID) for mortgage brokers, which is set to take effect in January 2021.
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ASIC’s high-level, principles-based guidance seeks to outline obligations under the Financial Sector Reform (Hayne Royal Commission Response – Protecting Consumers [2019 Measures]) Bill 2019, and contains ASIC’s views on how mortgage brokers may comply with their obligations at “key stages” of the credit assistance process.
ASIC stressed that the BID obligations “operate alongside” and “complement” the “not unsuitable” test under the National Consumer Credit Protection (NCCP), raising the bar for credit assistance.
However, unlike obligations under NCCP, brokers would be required to keep records of their interactions with clients in order to demonstrate that the product they’ve recommended is, in their judgement, best suited to the borrower’s needs.
Speaking to The Adviser, director of QED Risk Services Greg Ashe said the vast majority of brokers already meeting record-keeping obligations could “carry on as usual” without fear of breaching their responsibilities.
The QED director said the BID would codify what he has already been recommending as best practice in the broking industry.
However, according to Mr Ashe, there still remains a cross-section of brokers unwilling to adapt to evolving compliance obligations.
“There’s still an underbelly of the old guard in the mortgage broking world that’s still resisting,” he said.
“They don’t want to document everything they do; they just want to pump through the consumers.”
Mr Ashe said such brokers would have nowhere to hide when the BID takes effect in January 2021.
“Those brokers [need] to wake up now, read the writing on the wall, and either do it or just leave,” he added.
Ultimately, Mr Ashe expects the BID to strengthen the broker proposition, serving as a clear point of difference between the third-party channel and the proprietary channel.
“This is now our opportunity, our opportunity to say to a consumer, ‘We have to do this, we have to act in your best interests’. ‘If you go to your local big four branch, they don’t have to do that, they just give you what they have’,” he said.
“I think if we use it right, this is a marketing opportunity for mortgage brokers.”
[Related: ASIC releases BID guidance]
