In our October edition of Better Outcomes, we provided some guidance as to what Best Interest Duty (BID) was all about and particularly focussed on who it applied to. Since publishing this, Treasury has commenced an industry consultation period on a proposal to extend BID and its obligations to all Finance Brokers regardless of the business they operate. Ie. beyond current scope of Mortgage Brokers only.
Whilst SalesKey supports extending Best Interest Duty and Conflicted Remuneration Obligations to all Finance Brokers, we do not support BID (as it stands now) applying to non-Mortgage credit products. For several reasons, we believe there will be adverse unintended consequences to the broader Finance Broking market and also to consumers should this occur. For example, an uneven playing ground between Finance Brokers and Car Dealers will occur.
For now, Treasury continues to speak with industry participants before they finalise the finer details of any such ‘extension’. We’d suggest a common-sense approach will be landed upon and when finalised, SalesKey will proactively communicate with and support our compliance partners.
From 1-Jan 2021, BID does apply to Mortgage Brokers and as reminder this is generally defined as where the regular credit assistance service conducted by the Credit Licensee or Credit Representative is home loan related.
Some industry participants argue that it applies to all credit assistance if the broker (or their licensee) conducts or even advertises any mortgage-related consumer assistance.
So, what are the obligations placed on the ACL holder?
- Credit licensees must take ‘reasonable steps’ to ensure their authorised loan writers comply with BID obligations including monitoring, supervising, creating processes, providing training, and conducting file reviews.
- It is an ACL holder’s responsibility to ensure that appropriate records are kept. These file records must demonstrate their brokers (incl. staff and ACRs) have complied with all obligations.
- If a broker breaches BID, the ACL holder must take proactive steps to ensure future compliance applies.
What are the steps required to comply with BID?
ASIC has defined 3 specific steps to ensure mortgage brokers comply with their best interest duty:
- Gather information about the customer,
- Make an assessment based on the individual, and
- Adequately present information and recommendations.
Responsible Lending obligations still apply, but BID raises the bar higher!
BID requires the broker to assist the consumer in finding the best suited loan solution, rather than one that is simply ‘not unsuitable’.
For our retained compliance support partners, we will be sharing some additional resources shortly and will be incorporating BID obligations into our 2021 file audits. For other businesses seeking extra clarity or support, we’d love to chat more via 1800 954 488.
As we close out another year, we’d like to thank you all for your support and in many cases, friendship. It’s been a tough year for most and everyone deserves a restful and safe Christmas period. We wish you and your loved ones the same and we look forward to continuing our journey of providing Better Outcomes for the intermediated finance industry throughout 2021.
Kind Regards and Merry Christmas.
The SalesKey team.