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Consumers come first in mortgage broking changes

The Best Interest Duty will force mortgage brokers to ensure that their governance arrangements and policies are best practice, and that they adopt a high level of accountability and reporting with each transaction
14-12-2020

The  mortgage broking industry is set for a shake up with the new laws governing the  profession due to come into effect on 1 January 2021.

From that  date mortgage brokers will be required to act in the best interests of consumers  and prioritise consumers' interests when providing credit assistance.

ASIC will closely monitor  conduct and outcomes to ensure mortgage brokers are complying effectively with  the Best Interests Duty (BID). Failure by the mortgage broker to comply with the new regulations will  result in the loss of their licence to operate.

The BID and related obligations are designed to ensure  that clients receive advice that meets their objectives, financial situation  and needs, and that brokers act in the best interests of their clients when  providing advice.

The new obligations were  legislated in response to recommendations by the Financial Services Royal  Commission.

Director of  KR Peters Peter Nicolls said the new obligations will help protect consumers  from unscrupulous brokers.

"Clients  who rely on broker advice may suffer significant loss if that advice is conflicted  or is not of sound quality," Mr Nicolls said.

"To protect the client from bad practise, the mortgage broker will be required to  explain to the client why they have selected the loan, and the reasons that led to the decision they have made. They must provide the client with a variety of  options and reasons why what they recommend is the most suitable."

From 1 January the mortgage broker must:

  • act  in the best interests of the client
  • provide  the client with appropriate advice
  • warn  the client if their advice is based on incomplete or inaccurate information
  • Where  there is a conflict with the mortgage broker's own interests, or those of related parties, they must prioritise the interest of the client
The mortgage broker will need to keep written notes on file for a minimum of 7 years.

"The  Best Interest Duty will force mortgage brokers to ensure that their governance  arrangements and policies are best practice, and that they adopt a high level  of accountability and reporting with each transaction," Mr Nicolls  explained.

"The  new role of the mortgage broker will be to gather information about the client,  to make an individual assessment and to deliver recommendations that will be in  the best interests of the client.

"Hopefully,  only the best will survive and the unscrupulous and unethical brokers will be  eradicated," Mr Nicolls said.

Announcing the new guidance, ASIC Commissioner Sean Hughes  said "These are important and timely reforms for the mortgage broking  industry and for customers shopping for a loan."

"Consumers  rightly expect mortgage brokers to act in their best interests and ASIC's guidance describes how we expect them to do so. Under these new obligations, let there be no doubt – the consumer must always come first."

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