What brokers should do following the deferral of BID

ASIC recently announced it would defer the commencement of the best interest duty by six months in order to help mortgage brokers deal with the impacts of COVID-19.

According to executive director of Connective Mark Haron, the deferral came with a positive message around the pivotal role that brokers are currently playing.

“They’ve literally noted, and the regulators have all said this directly, that they appreciate what mortgage brokers have been doing in terms of helping their community and helping their customers.”

He says while the industry is already making substantial progress towards BID, this reprieve will allow brokers further time to absorb the details of the regulatory guidance while continuing to help clients through the pandemic.

Brokers have already made strides towards BID

Speaking from a Connective point of view, Haron says mortgage brokers are in a good position to meet BID requirements.

He says the industry started tracking towards this even prior to the royal commission through the work of the combined industry forum; removing things such as volume-based bonus commissions in a self-regulatory environment.

“Likewise, to the changes to renumeration around net of offset or utilisation payments in terms of the upfronts; the industry has moved and adopted that in a self-regulatory environment, so there’s going to be no shock,” he says.

“The big piece of course is what do brokers need to do in terms of their systems,” he says, explaining that there will likely be a requirement for brokers to document how they meet their customers’ best interests when making recommendations.

What are the reforms likely to look like?

Haron says while there are some aspects of BID that need further clarification, it is likely that brokers will need to show customers and the regulators the different options considered and explain how their recommendation best meets the client’s interests, while also disclosing the details of any conflicts that may exist.

This is based on the results of shadow shopping exercises conducted by ASIC last year, in which it was found brokers weren’t always presenting an overview of the various loans considered before making recommendations to clients.

“There’s a little bit of ambiguity in respect to how far a broker needs to go in terms of reviewing different lenders and different products in satisfying that they’ve researched across a range of different lenders to meet that customer’s best interest.”

Regarding the legislation, Haron says there are three main components at its core.

“Mortgage brokers must act in the best interests of the customers and that means putting the customer’s interests ahead of your own primarily,” he says.

“Where there is a conflict of interest, the broker must put the customer’s interests first.

“And obviously, there is a ban on conflicted remuneration – which is not commissions per se, but it’s things outside the core commission thing, such as buy in bonus incentives and things like that.”

Let’s not leave anyone behind

Haron says although we have a six-month reprieve, brokers are going to be very busy during this time and he hopes everyone in the industry will move quickly to put the necessary procedures in place once ASIC gives its final regulatory guidance.

“It’s not just a physical shift of fact collecting or recording a bit more information, there’s also a mental shift in terms of adopting the principles,” he says.

“Most mortgage brokers are already there but we’ve got to make sure the whole of the industry goes down that path and we don’t leave anyone behind.

“Like a lot of industries, we get judged by the poorest delivery on certain things. One good thing about having tighter regulations is that if brokers are not doing the right thing, it’s much easier to find that out.

“It’s much easier to ban them and remove them from the industry – and that will be to the benefit of all the good brokers.”