The National Consumer Credit Protection Act 2009 (National Credit Act) requires mortgage brokers to act in the best interests of consumers when providing credit assistance. Where there is a conflict of interest, mortgage brokers must prioritise the interests of consumers, and must not accept conflicted remuneration.
Best Interest Obligations (BIO)
These new laws improve consumer outcomes by requiring brokers to act in the best interests of their clients and by reducing the potential for conflicts of interests to arise which may impact the advice consumers receive from brokers. Collectively, these obligations are referred to as the “Best Interest Obligations” (BIO).
The BIO apply only in relation to credit products that are regulated under the National Consumer Credit Protection Act 2009 —that is, products provided to consumers for personal, domestic or household purposes or for the purchase or improvement of residential investment property.
Table: Best Interest Obligations (BIO) – Overview of the New Laws & Sections in NCCP Act
Section of NCCP Act
Best Interest Duty (BID)
Mortgage brokers & Licensees are required to act in the best interests of their clients when providing credit assistance.
Priority Conflict Rule (CPR)
Mortgage brokers & Licensees are required to prioritise their clients’ interests when providing credit assistance.
Conflicted Remuneration Ban
Regulations can restrict the circumstances in which conflicted remuneration can be given or received in connection with credit services provided by mortgage brokers and intermediaries.
^ The obligations apply to Mortgage Brokers and Credit Licensees, although for licensee the requirements are grounded in “taking reasonable steps” to ensure its credit representatives (Brokers) are adhering to the new obligations.
The CHALLENGE: Licensee obligation to ensure Mortgage Brokers adhere to BIO
Licensees must take reasonable steps to ensure that their Brokers comply with the best interests duty and the conflict priority rule. These obligations apply to prevent contraventions, rather than simply respond to contraventions after they have happened. Importantly, a mortgage broker does not need to breach their best interests obligations for the Licensee to have failed to take reasonable steps.
Licensees are responsible for EACH INDIVIDUAL Broker. This means there is an expectation from the regulator (ASIC) that Licensees develop processes and oversight to help their mortgage brokers comply with the best interests obligations. What constitutes reasonable steps may vary depending on the nature and scale of individual operations and the relationship between Broker and Licensee.
Many Licensees have already invested significant resources, and made changes to both technology and business processes, to minimise the risks associated with the Best Interest Obligations (BIO) framework. For example, some have undertaken direct engagement with Brokers through training, webinars and small group sessions in an effort to demonstrate they, as a Licensee, have taken “reasonable steps”.
Whilst all this work has been undertaken, there still needs to be confirmation that each Broker has comprehended their new obligations.
How does a Licensee know, and demonstrate it knows, that individual Brokers are aware, understand and comprehend the best interest obligations which come in to force on 1st January 2021?
The OUTCOME: Broker Individual Competency Assessment (ICA)
myIntegrity in Practice (myIP) provides Licensees with the ability to individually assess each Broker’s comprehensive of the Best Interest Obligations through the Individual Competency Assessment (ICA) Program.
The ICA Program enables Licensees to include a “capstone” to their Broker engagement strategy. The ICA provides crucial documented evidence that a Licensee has “take(n) reasonable steps to ensure” their Brokers comply with the Best Interest Obligations (BIO). The ICA also offer up to 3 CPD hours.
What are the benefits of the ICA Program?
The ICA enables Licensees:
- to identify Brokers who DO understand the Best Interest Obligations (BIO) framework and do not need more training
- to identify Brokers who DO NOT clearly understand the Best Interest Obligations (BIO) framework and need more assistance
- to provide additional Continuing Professional Development (CPD) hours