ASIC has today started a four week consultation on draft guidance about the new best interests duty for mortgage brokers.
The new obligations were legislated by the Parliament in response to Recommendation 1.2 of the Royal Commission. From 1 July, the obligations will require mortgage brokers to act in the best interests of consumers and to prioritise consumers' interests when providing credit assistance.
Announcing the consultation, ASIC Commissioner Sean Hughes said, 'The obligations properly align the interests of mortgage brokers with the interests and expectations of their clients - the borrowers. Consumers should feel confident that their broker is offering the best loan for their circumstances and we expect that consumer outcomes will improve as a result of this reform.'
'We have released this draft guidance for consultation as early as possible, to help promote certainty for mortgage brokers as industry prepares for the new obligations to commence in July' Mr Hughes added.
ASIC's proposed approach to the guidance is outlined in Consultation Paper 327 Implementing the Royal Commission recommendations: Mortgage brokers and the best interests duty (CP 327). Consistent with the legislation, the draft guidance is high-level and principles-based, but also incorporates practical examples. The purpose of the guidance is to explain the obligations introduced by the Government, it does not prescribe conduct or impose additional obligations.
The draft guidance is structured around the key steps common to the credit assistance process of brokers, such as gathering information, considering the product options available and presenting options and a recommendation to the consumer.
ASIC welcomes views from all interested stakeholders on the proposals in CP 327, as well as the draft guidance. This will allow ASIC to understand how the guidance can best assist brokers to meet these new legal obligations. ASIC expects that the new obligations will also improve competition in the home lending market.
ASIC seeks public comment on the draft guidance by 20 March 2020.
ASIC intends to publish final guidance before the obligations commence on 1 July 2020.
- Consultation Paper 327: Implementing the Royal Commission recommendations: Mortgage brokers and the best interests duty
In February 2019, Parliament passed the Financial Sector Reform (Hayne Royal Commission Response—Protecting Consumers (2019 Measures) Act 2020, which introduces a best interests duty for mortgage brokers in response to Recommendation 1.2 of the Royal Commission. The duty is a statement of principle which seeks to align the interests of the mortgage broker with the interests and expectations of the consumer.
ASIC's proposed guidance will assist mortgage brokers to comply with these new legal obligations by setting out ASIC's views on what the best interests duty provisions require and steps that can minimise the risk of non-compliance.
The best interests duty introduced by the Government applies in addition to the responsible lending obligations. ASIC's draft guidance explains the interaction of these two obligations, including that information gathered for the purpose of complying with the responsible lending obligations may help brokers to comply with the best interests duty.
ASIC's draft guidance follows research we published last year in Report 628 Looking for a mortgage: Consumer experiences and expectations in getting a home loan. Key findings from this research included:
- consumers who visit a mortgage broker expect the broker to find them the 'best' home loan;
- mortgage brokers were inconsistent in the ways they presented home loan options to consumers, sometimes offering little (if any) explanation of the options considered or reasons for their recommendation; and
- first home buyers were more likely to take out their loan with a mortgage broker.