Best Interests Duty FAQ
To support the industry in the lead up to January 1, 2020, the ASIC mortgage broker best interests duty implementation team provided updates to common questions they receive. This update includes responses to the following questions relating to record-keeping and the ban on conflicted remuneration:
- Will ASIC be reviewing broker files?
- What can brokers do to demonstrate compliance as of 1 January 2021?
- Can brokers use voice recordings as a form of record keeping?
- How can brokers record their justification for recommending certain products, for example, offset accounts?
- Will the ban on conflicted remuneration apply to arrangements made on or after 1 July 2020?
Will ASIC be reviewing broker files?
In the lead up to the commencement of the best interests duty and related obligations on 1 January 2021, we are looking to review some broker files and developing some key risk indicators. We expect to be in touch with aggregators about this shortly. This work will help us:
- address any areas where things we would expect to see on files may not be present;
- identify any areas where we can better support industry; and
- develop information requests to allow us to monitor compliance with the best interests duty and related obligations.
What can brokers do to demonstrate compliance as of 1 January 2021?
There is no safe harbour provision, but there are things that brokers can do to minimise the risk of non-compliance. One of these things is ensuring good records are kept throughout the process of providing credit assistance. It would be helpful for records to explain why what was recommended to the consumer was in their best interests. Regulatory Guide 273 Mortgage brokers: Best interests duty contains more guidance, in particular at RG 273.162-172.
Can brokers use voice recordings as a form of record-keeping?
Yes. Records can take various forms and do not have to be paper based. Voice recordings, if they are suitably clear, detailed and logical, might be a way for brokers to keep records.
How can brokers record their justification for recommending certain products, for example, offset accounts?
When brokers are providing credit assistance, we expect that they will keep records of inquiries made into the consumer’s circumstances and the consideration, investigation and assessment of the product recommended. An example might be where the broker recommends a loan with an offset account. In this situation, the broker should include the offset calculations in their records, as these may demonstrate how, based on their circumstances, that consumer could benefit from the recommended product(s). We would also expect to see an explanation of why those product(s) were recommended.
Will the ban on conflicted remuneration apply to arrangements made on or after 1 July 2020?
We have deferred the ban on conflicted remuneration by way of the ASIC Credit (Deferral of Mortgage Broker Obligations) Instrument 2020/487. After receiving feedback, we have concluded that without further action, benefits paid after 1 January 2021 in relation to credit services provided on or after 1 July 2020 would be subject to the ban on conflicted remuneration. Our intention was that the deferral would mean that only benefits relating to credit services provided on or after 1 January 2021 would be subject to the ban.
To make this intention clear, ASIC has amended the deferral instrument by way of the ASIC Credit (Amendment) Instrument 2020/963 to make it clear that the ban will only apply to benefits relating to a credit service provided on or after 1 January 2021. This means that benefits paid in relation to credit services provided between 1 July and 31 December 2020 will not be subject to the ban regardless of when the benefit is given.
This instrument has been made, and should be published on the Federal Register of Legislation shortly. We thank stakeholders for bringing this matter to our attention.