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As the Australian Law Reform Commission has considered consolidating the licensing regimes for credit and financial services, the broker body has warned it would likely add complexity.
The Australian Law Reform Commission (ALRC) started an inquiry into financial services legislation last year, aiming to simplify the “complex” web of laws, across the Corporations Act, the ASIC Act and the National Consumer Credit Protection Act (NCCP).
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The body had sought feedback from industry earlier this year, engaging with both the Finance Brokers Association of Australia (FBAA) and the Mortgage and Finance Association of Australia (MFAA).
One of the ALRC’s proposed reforms included considering whether it could be worth merging the licensing regimes for credit and financial services.
But the FBAA has cautioned against the move in its submission to the inquiry, stating that the credit licensing structure has been “extremely simple and only contained two authorisations”.
An applicant initially could only seek one or both credit provider and credit assistance provider (other than credit provider) authorisations – a simpler scheme than the Australian financial services licence (AFSL) equivalent.
However, the regime has evolved over the years, with the FBAA fearing a consolidation with financial services licensing would only further exacerbate the complexity.
“In recent years we see credit licence applications becoming more complex and the range of activities and authorisations is beginning to grow,” the submission stated.
“We support moves to keep the licensing regime simple. This would be unlikely if credit were to merge with AFSL as it is more likely that the complexity of credit applications would increase to be brought closer to an AFSL application than it would be for AFSL applications to become as simple as credit licence applications.”
The FBAA noted that at one point, there could have been a singular licensing and regulatory regime for all credit and financial services businesses – when credit could have been added as a financial product under the Corporations Act.
This would have retained a single regime and “would have been the most efficient approach to initiate the credit regime”, the body said.
“Arguably the time to consider whether financial services and credit should be regulated conjointly passed with the introduction of the NCCP regime in 2009,” the submission asserted.
The body has also asked that the ALRC consider the use of responsible manager in relation to licensing, commenting that despite the responsible manager being “critical” to the success of any licence application, they are not identified in the legislation, only in the regulatory guidance.
“Part of the complexity of licensing (aside from the very large list of potential activities under the AFSL application) is that the requirements are distributed across legislation and regulatory guidance,” the submission stated.
Credit definition
The FBAA has also supported the ALRC’s proposal of installing uniform definitions, particularly for credit, across the various acts.
It pointed to the definition of credit being inconsistent across the Corporations Act and different sections of the National Credit Code.
However, it noted the definition should also maintain a distinction between consumer and commercial credit, and that it should no longer require that a charge be made for providing credit.
The last part is what allows entities such as buy now, pay later providers to remain exempt from the credit regime, the FBAA noted.
Further, the ALRC has explored removing prescriptive requirements from the Corporations Act, in the interests of simplification.
The provisions it considered removing were the need to have arrangements in place for the management of conflicts of interest, maintaining competence to provide financial services, ensuring representatives are adequately trained and have adequate risk management.
But the FBAA has pushed back on this suggestion, saying prescriptive provisions “give certainty to entities regarding their obligations”.
“It is likely that removing all prescriptive provisions and leaving only the broader concept of engaging in activities ‘professionally, honestly and fairly’ would make it more difficult for entities to understand their specific obligations and leave them more vulnerable to actions against them for falling short of obligations or standards of conduct that are not clearly defined,” the submission said.
“Licensees benefit from having a defined set of obligations around which they can structure their business and compliance frameworks.”
Meanwhile, the MFAA has asked for certain gaps in recent regulations to be touched up, across reference checking, breach reporting and design and distribution obligations (DDOs).
[Related: Plug gaps in broker regulations, says MFAA]
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