‘Customer first duty’ could be extended to all in finance industry

The CIF set out six key reforms for the broking industry last year, in response to ASIC’s review of mortgage broker remuneration and considering the third-party recommendations of the Sedgwick review.

As well as the six reforms, the CIF also set a standard definition for “good customer outcomes”, which looks at the size and structure of the loan, affordability, responsible lending requirements and individual customer needs.

In its new progress report, the CIF said that it had agreed “in principle” to extend its good consumer outcomes requirement to incorporate a “conflicts priority rule” as a “customer first duty”.

The report reads: “The ‘conflict priority rule’ could be formulated as a requirement for the customer’s interests to be placed above the providers, or those of their organisation, based on the information reasonably known to the provider, at the time of providing the service.

“The effect of this approach would be a requirement to place the customer’s interests first. The combination of the good customer outcome definition and a customer first duty allows both an easy-to-follow principle — put the customer’s interests first — and structure to follow for brokers when assessing loan suitability.”

According to aggregation group FAST, a member of the CIF, the customer first duty could be extended across the finance industry, rather than being solely focused on brokers.

Speaking during The Adviser’s webcast, Responsible lending: Has the game changed?, FAST CEO Brendan Wright responded to a question from a broker watching the webcast named “Nicki”, who asked: “The CIF good customer outcome, why is this not an industry standard across ALL platforms? Why are brokers the only platform being lopped with this?”

In response, Mr Wright said: “That’s a great question… let’s see what plays out, to be honest. [With] the Combined Industry Forum, the longer-term strategy is to turn what’s coming out of that initiative into a code. And I suppose where Nicki is getting to, is to apply the same thing to lenders in branches or banks, for example, and other industries. It would be fair to say, watch this space. 

“This industry is taking a leadership position and particularly learning from what happened in the wealth space. That industry did not work together as an industry to solve for what needed to be solved for; mortgage and finance broking industry learnt from that and so that is an example of how, by taking a leadership position, you can change the game in a positive way and a long-term way.

“So, watch this space would be my answer to that and I think it will play on beyond our industry.”

Indeed, the CIF progress report outlined that a workstream is working on developing a Mortgage Broking Industry Code, which is expected to be in place by the end of 2018, and hinted about this being extended to “include new participants over time”.

Mr Wright later told the webcast audience that the CIF’s “leadership position will continue to make a difference and it will play across elsewhere in financial services and beyond.”

When asked to elaborate on the suggested extension of the reform to incorporate multiple sectors, the deputy chairman of the CIF and director of aggregation company Connective, Mark Haron, told The Adviser: "I think this is a standard that brokers have been working to for a long, long time and if you have a look at good customer outcomes, any broker who is not doing that right now should leave the industry. 

"The intention is that it becomes a whole of industry thing but in terms of current trends and implementation, we will start with brokers and I think that has a huge advantage to brokers," he said.

"It certainly significantly improves the broker proposition above and beyond what the bank proposition is by having a higher standard and it becomes more of a n opportunity for brokers, I believe, to continue to grow their market share of customers."

Mr Haron added that he believed lenders will be requires to bring in more standards off the royal commission, but said that it was a "good thing" for brokers to be bringing in these new standards "as soon as possible, regardless of whether the banks can meet their time frame or not".

Meanwhile, Opica Group chairman Brett Spencer recently noted the cross-industry involvement of the CIF (there are 37 members and three work streams working on delivering reform), particularly highlighting during The Adviser's webcast “the breadth of members who are working on the CIF, industry leaders, both major industry groups (MFAA, FBAA), most pf the major lenders, most of the secondary lenders, most of the aggregators, [brokers] etc.

“You have got everybody there; everybody has effectively got a seat at the table and it’s now just a matter of the roundtable being in [agreement] of things and I think they will do that,” Mr Spencer said.

“It may take time, but I think the fact that they are all at the table is the first positive step in a long time.”

The CIF has said it intends to provide Treasury with an update on progress in early December 2018, with a final report of the implementation of the reforms due by 31 December 2018 expected to be delivered in the first quarter of 2019.

Progress reporting will then continue as required, on a six-monthly cycle. 

[Related: CIF to propose ‘customer first duty’ for brokers]