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ASIC Regulatory Guide on Best Interest Duty – Bulletin Note

Sunday 28, Jun 2020

Last week, ASIC released its Regulatory Guide 273: Mortgage Brokers: Best Interests Duty. In doing so, ASIC makes clear the “the best interests obligations apply only in relation to credit products that are regulated under the National Credit Act—that is, products provided to consumers for personal, domestic or household purposes or for the purchase or improvement of residential investment property”. This is consistent with advice to CAFBA and settles any concerns that the legislated duty might extend to licensed mortgage brokers when they arrange business or commercial finance – it does not.

The legislated best interest duty requirements on (consumer) mortgage brokers will apply from 1 January 2021.

However, Members should be complying with CAFBA’s professional standards as part of their membership. The standards are comparable to the legislated best interests duty and apply to both voting and associate Members. Also, these standards apply regardless of the type of finance being arranged.

Pertinent elements of the standards that, together, create a ‘best interests duty’ include:

 

Standard 1: Professionalism

1.3 Independence and Objectivity

Members must use reasonable care and sound, appropriately informed judgment to achieve and maintain independence and objectivity in their professional activities.

Members must not offer, solicit, or accept any gift, benefit, compensation or other form of consideration that could reasonably be expected to compromise their own or another’s independence and objectivity. All commissions and other forms of remuneration and benefit are to be clearly disclosed to clients, if required under current law.

1.4 Honest, efficient & fair conduct

Members must conduct their professional activities honestly, efficiently and fairly, with the interests of both clients and staff being of paramount importance.

Members must not engage in any misconduct that reflects adversely on their professional reputation, integrity or competence or on the profession as a whole.

 

Standard 2: Duties to Clients

2.1 Competence, Prudence, and Care

Members must act for their clients’ benefit and place their clients’ interests before their employer’s and/or their own interests.

2.3 Suitability

Members must ensure the products and services offered to clients meet each client’s requirements and objectives, so that clients are directed to suitable products and/or services. A client’s requirements must be paramount, with the placement decision not influenced by member remuneration considerations.

Members must not make any misrepresentations, knowingly or otherwise, relating to client needs analyses, recommendations, product suitability or placement or about any other professional activities and/or services.

 

Standard 4: Conflicts of Interest

4.1 Conflicts identification and disclosure

Members should demonstrate they have identified all actual, and potential, conflicts of interest in their business model.

4.2 Mitigation/removal of conflicts

Members should identify all actual, and potential, conflicts of interest in their business model and have taken steps to eliminate them where possible or mitigate their impact, if not.

4.3 Secret Commissions

Members need to ensure clients have been fully informed about all remuneration paid to, or by, the member, including commissions, benefits and referrer payments.

 

Standard 5: CAFBA Member Responsibilities

5.1 Member conduct obligations

Member conduct must always promote the highest ethical and professional standards to which CAFBA subscribes.

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