Conflict Priority Rule
The Conflict Priority Rule (CPR) (RG273.144- RG273.161) is a separate obligation from the Best Interests Duty, however also applies each time you provide credit assistance.
What is it?
The CPR acknowledges that conflicts exist, however places a legal obligation on mortgage brokers to prioritise the needs of their clients above their own (or any of their related parties) in response to these conflicts. This applies when you know, or ought to reasonably know, that a conflict exists when providing credit assistance.
The below covers how you can meet the CPR requirements in relation to conflicts and:
- related parties;
- credit providers; and,
- as well as key steps you can take to avoid failing the CPR
Related party or credit provider conflicts:
Mortgage brokers are expected to take active steps to identify all conflicts of interest to minimise the risk of a contravention, including obligations that can arise because of their commercial relationships with third parties.
Third parties may include (yet are not limited to):
- the credit licensee;
- the credit representative;
- an associate of the licensee;
- an associate of the credit representative (including referrers);
- another representative of the licensee; or
- an associate of another representative of the licensee.
Active steps you can take in order to meet the CPR requirements are:
- Consider what benefits will result from the credit assistance you provide: considering what benefits you, or your related parties, will receive if the consumer acts on your credit assistance may help you to determine whether a conflict exists
- Inform the consumer of ownership structures and commercial ties: you should inform the consumer of any ownership structures or commercial ties that have the potential to affect the credit assistance you provide. This can be done in MyCRM in the Conflicts of Interest Declarations section or by providing the Joint Venture document to your customer from Important Documents in MyCRM.
Any other conflicts must be disclosed in MyCRM which will then be presented to your client in the Game Plan. Remember - disclosure of a conflict or approval of the conflict by your client doesn’t remove your need to comply with the CPR. You must still prioritise the consumer’s interests ahead of your own and those of any related party.
There is potential for commissions to cause conflict. Examples include recommending a loan based on the commission you will earn where:
- The loan has a higher interest rate than comparable alternatives.
- The loan does not have features the consumer considers important or would be in their best interests.
- Using a “one-size-fits-all” approach and recommending a particular credit provider to a substantial portion of consumers regardless of their individual circumstances
The CPR will not always prohibit you from recommending a credit product where a conflict exists. However, if there is a conflict, you should keep records of your reasoning behind any recommendation in MyCRM.
You should ensure that all your recommendations are made with the consumer’s interests as your primary consideration and make the relevant commentary within the recommendation to prove that this is the case. If you prioritise maximising or receiving non-consumer sources of remuneration over the interests of the consumer, you will be in breach of the CPR and Best Interests Duty.
How can you resolve conflicts in your client’s favour under CPR?
- Monitor conflicts of interest that you or your related parties have and retain a copy of these in MyCRM
- Identify conflicts of interest that you or your related parties have in relation to the specific regulated credit assistance you are providing
- Always disclose conflicts - ensure that your conflicts are disclosed clearly to consumers (within the Game Plan) however note that simply disclosing conflicts does not rectify any conflict that you may have and you still need to place your client’s interests ahead of your own or those of your related party.
- Prioritise interests - ensure that you prioritise the interests of the consumer by asking “what would a broker in my situation without a conflict do?”
- Document all of the above within MyCRM - record keeping is critical in proving compliance
If you have any questions, please contact firstname.lastname@example.org