Speaking at last Friday’s (16/11) FBAA national industry conference, Mr Boyd Honor – ASIC Senior Manager – commented that the regulator was in favour of introducing an additional ‘best interests’ duty for brokers.
He went on to recommend that the ‘best interests’ duty could be included in the ASIC Act; “giving it application beyond regulated credit activities, as it complements, but is not an alternative to, the enhanced responsible lending obligations”.
If this is introduced, the obligations would require brokers to:
- Find the most suitable loan among those that they reasonably consider;
- Ask some mandated additional inquiries of the customer to identify the most suitable loan (e.g. whether the consumer is seeking a loan that they can pay off as quickly as possible); and
- Conduct a written assessment that details the reasons for selecting one product over others, and furthermore; provide the consumer this written assessment at the time of recommendation.
Mr Boyd said that such a change would have the following “advantages”:
- it would apply to all brokers and to brokers operating across both regulated and unregulated lending”;
- it would mandate a requirement to act in a way that is consistent with borrower belief or expectation of the role of the broker (as identified by the royal commission) that the broker is acting for the consumer and not the lender”; and
- it can “deliver benefits to small business borrowers, without the risk of an adverse impact on credit pricing or availability (given that placing additional obligations on brokers will not affect the practices of lenders)”.
The regulator also told the commission that the introduction of these specific obligations would:
- seek to better align incentives with the interests of the consumer;
- clarify the differences in the role of brokers from that of lenders in a way that better matches consumers’ belief or expectation that brokers are acting for the consumer and not the lender; and
- ensure that brokers provide value to the consumer through the loans they arrange (in the language of the royal commission interim report, that they do not just “sell bank loans”).
It is interesting to note that the following day these proposed “Customer First Duty for Brokers” was backed by the major banks too – http://bit.ly/2PF2Wos.
The above proposes changes will certainly put an even greater responsibility on the Broker to act in the best interest of the clients at all times including the responsibility of making a written assessment about why the chosen product and this will include the interest rate the client received. As mentioned above this will also include unregulated lending which will be a significant change for that sector. In addition, these comments also highlight the need for the broker to further understand that they act for the consumer and not the lender!
We’d encourage you to talk with us today around your current obligations under Responsible Lending and in particular “Conflicts of Interest”.
Call us on 1800 954 488 or email firstname.lastname@example.org.
Source: published in Australian Broker, 11 October 2018. http://bit.ly/2Q8SzbU