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:
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."