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Responsibilities of Mortgage Brokers, Intermediaries and Managers – Best Interests Duty and Conflicted Remuneration

Contents

Best Interests Duty

Mortgage brokers have been required to act in the best interests of consumers and prioritise the consumer’s interest when providing mortgage broking services.  This duty has applied since January 2021. ASIC’s Regulatory Guide 273 (RG 273) outlines ASIC’s views on the best interest duty obligations and its expectations of the mortgage broking industry. ASIC has made clear that the guidance in RG 273 is high-level principles only and are not prescriptive steps to ensure compliance with the relevant obligations.

What is the best interests duty?

Mortgage brokers are required to act in the best interests of consumers when providing credit assistance services, considering the consumer’s needs, goals and financial situation.

It is important to note the National Credit Code does not establish a safe harbour standard for mortgage brokers for meeting the best interests duty. ASIC indicates mortgage brokers are required to take all necessary steps to ensure they act in the consumer’s best interests.

RG 273 includes a table which summarises ASIC’s general approach that mortgage brokers may take to demonstrate compliance with the best interests duty obligations. The general approach includes:

  • gathering information about the consumer;
  • making an individual assessment; and
  • presenting information and recommendations to the consumer.

Are you required to comply with the best interests duty obligations?

The best interest duty applies to all persons who:

  • carry on a business of providing credit assistance services in relation to credit contracts secured by mortgages over residential property;
  • do not act as the credit provider in relation to the majority of those credit contracts; and
  • provide credit assistance in relation to credit contracts offered by more than one (1) credit provider.

 

Whilst RG 273 and the legislation use the term mortgage brokers, ASIC has indicated the title of the person providing the credit assistance services is irrelevant. Any person who satisfies the above criteria is required to comply with the best interests duty.

Mortgage Managers

It’s important to note ASIC’s guidance in relation to mortgage managers. ASIC recognises that mortgage managers operate under many structures, some provide credit assistance to consumers to help them obtain credit from a range of providers, whilst others have arrangements with credit providers to help with the day to day administration of the loan. Whether the best interests duty applies will depend on the specific activities of each mortgage manager.

ASIC’s guidance specifically notes that for the purposes of the best interests duty, a person will not be considered a mortgage broker where they perform the obligations, or exercise the rights, of a credit provider. Its sufficient if the person only performs some of the obligations – for instance, a mortgage manager who exercises the right to repayment on the majority of credit contracts for which they also provide credit assistance, will not be subject to the best interests duty.

So, mortgage managers who perform the obligations, or exercise the rights, of a credit provider will not be subject to the best interests duty. Mortgage managers should also ensure they do not represent to consumers that the duty does apply – as this could be a breach of the misleading and deceptive conduct provisions of the ASIC Act 2001.

When does the best interests duty apply?

The best interests duty applies any time a mortgage broker provides credit assistance to a consumer.

Conflicted Remuneration

The ban on conflicted remuneration applies to mortgage brokers. If you are a mortgage broker, mortgage intermediary or credit provider, you should consider your remuneration structures to determine whether they comply with the ban on conflicted remuneration. The National Consumer Credit Protection Act 2009 (“NCCP Act”) includes anti-avoidance provisions which means that any scheme devised to avoid the ban on conflicted remuneration will be subject to the civil penalties contained in the NCCP Act.  The ban has applied to mortgage brokers since January 2021.

What is Conflicted Remuneration?

Conflicted remuneration refers to any monetary or non-monetary benefit that is given to a licensee or representative of a licensee which could reasonably be expected to influence the credit services provided to consumers (section 158N of the NCCP Act).

Who does the ban apply to?

The ban on conflicted remuneration applies to mortgage brokers (using the same definition as described above in relation to the best interests duty). However, the ban on conflicted remuneration also extends to mortgage intermediaries which are defined in the NCCP Act as a person or entity which:

  • carries on the business of acting as an intermediary in relation to credit contracts secured by residential mortgages;
  • does not perform the obligations, or exercise the rights of a credit provider in relation to the majority of those credit contracts; and
  • in carrying on their business, acts an intermediary in relation to credit contracts offered by more than one credit provider.

What is not Conflicted Remuneration?

The National Consumer Credit Protection Regulations 2010 (“Regulations”) provides guidance on which benefits will not be considered conflicted remuneration.

  1. A monetary benefit which is given by the consumer under a credit contract;
  2. A monetary benefit which is:
    • not a volume-based benefit; and
    • not a campaign-based benefit; and
    • if a drawdown cap applies, the benefit is not tied to the amount of credit or percentage of the maximum drawdown (Reg 28VB(3)); and
    • the clawback requirements are satisfied (where relevant);
  3. A non-monetary benefit that:
    • is valued at less than $300 for each licensee or representative; or
    • has a genuine education or training purpose, subject to certain criteria; or
    • is the provision of IT support or software; or
    • is given by the consumer in relation to a credit service.

Drawdown Caps

Regulations 28VC and 28VD provide further guidance on the benefits to which the drawdown cap applies and how to calculate the maximum drawdown net offset for a credit contact. The drawdown cap applies within one year of the beginning of the credit contract and will not apply to any benefits given after this period.

Clawbacks

Clawback arrangements require mortgage brokers to repay all or part of the benefit received from the consumer if the consumer is in default under the credit contract (Regulation 28VG of the Regulations). The Regulations provide that the clawback requirements must not apply for more than two years after:

  • the first day on which the credit contract is provided to a consumer for a new credit contract; or
  • the first day on which the credit contract is provided to a consumer for a refinanced credit contract.

 

The obligation to repay the benefit must not require repayment of an amount greater than the benefit given to the licensee or representative. Further, the consumer must not be subject to repay an amount that was to be repaid by the licensee or representative.

Contact Us

If you have any questions about how the ban on conflicted remuneration for mortgage brokers and mortgage intermediaries will affect you, please contact us.

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