ASIC addresses brokers on mortgage fraud: ‘With power comes responsibility’

The corporate regulator is turning up the heat on syndicated mortgage fraud, with the Australian Securities and Investments Commission (ASIC) confirming it is working alongside the Australian Transaction Reports and Analysis Centre (AUSTRAC), state police and the major banks to combat coordinated criminal activity moving through the broker channel.

Speaking at the Mortgage & Finance Association of Australia (MFAA)'s national conference in Melbourne this week, ASIC commissioner Alan Kirkland said the regulator was treating syndicated mortgage fraud – schemes involving coordinated conduct across multiple parties, sometimes linked to broader criminal enterprises – as a serious and evolving threat to confidence in home lending.

"This newer and complex form of mortgage fraud involves coordinated conduct across multiple parties, in some instances to facilitate other criminal activity," Kirkland said. "ASIC is working closely with AUSTRAC, the lead agency on these matters, as well as with the police and major banks."

Kirkland's comments come as the mortgage broking industry grapples with a fraud scandal that began with Commonwealth Bank's self-report of suspected fraudulent home loans earlier this year, with the suspected scale of the fraud growing substantially as more lenders review their books.

Kirkland stopped short of commenting on any specific case, but said ASIC was examining "what controls, frameworks and operational settings are in place" across licensees, brokers and referrers, and reminded licensees of their obligation to report suspected misconduct by other licensees or representatives.

"We encourage all industry participants to exercise vigilance," Kirkland said. "This is an evolving and serious issue, and it's in everyone's interest that it's comprehensively addressed so as not to weaken confidence in the home lending sector as a whole."

BID review approaching final report

The bulk of Kirkland's address centred on ASIC's first dedicated review of how brokers are complying with the best interests duty (BID), the obligation introduced in 2021 requiring brokers to act in their clients' interests when recommending a loan.

Kirkland described the duty as "a blueprint for building trust" and said the review – which has run in two phases, first gathering data on loan flows, commissions and clawback rates, then examining aggregators' compliance processes and complaints handling – would report in the final quarter of this year.

The review has analysed hundreds of complaints made to licensees in relation to the duty, with a particular focus on whether licensees' internal dispute resolution (IDR) processes were meeting the enforceable standards set out in ASIC's Regulatory Guide 271.

Kirkland noted that brokers now arrange 81% of new residential mortgages in Australia, a figure he said comes with commensurate responsibility.

ASIC intends to follow the format used in its financial advice reviews: setting out the legal obligations under examination, the methodology applied, and a spread of practices – from those demonstrating strong compliance to those raising concern – that brokers and licensees can benchmark themselves against.

What ASIC expects from brokers and licensees

Kirkland was direct about what "good" looks like under the duty. Recommendations must be tailored to a customer's circumstances and priorities, properly documented, and explained so the customer can make an informed decision – with brokers also recording the steps taken to educate customers about their options.

Generic, boilerplate reasoning, he said, would not hold up: "If the reasons for a recommendation are boilerplate factors that could apply to anyone, then it will be hard to demonstrate that the recommendation was in that customer's best interests."

He also drew a hard line against brokers simply processing what a customer asks for. "What acting in the customer's best interests emphatically does not mean is simply taking orders when you know a product isn't right for them or where there's a better deal to be had," Kirkland said, adding that a good professional "tells you what they should tell you, not what you want to hear."

On enforcement, Kirkland pointed to the regulator's track record: over the past five years, ASIC has used its administrative powers on 17 occasions to remove or restrict brokers and brokerage firms from the industry. He said low complaint volumes reported to the Australian Financial Complaints Authority (AFCA) shouldn't breed complacency, given ASIC draws intelligence from multiple sources, including industry participants, lenders and other regulators.

The Best Interests Duty has already reshaped the industry since its 2021 introduction, according to earlier MFAA and Deloitte research showing the majority of brokers believe the duty has improved trust in the sector.

The commissioner also addressed the growing use of artificial intelligence in broking during the Q&A with MFAA chief executive Anja Pannek (pictured, above, with Kirkland), telling delegates that existing obligations – including BID and licensees' risk management requirements – apply regardless of whether a broker uses AI tools to support recommendations. "You can't outsource your core obligations to an AI tool," Kirkland said, urging brokers to understand exactly how any AI system they use generates its outputs.

Pannek used the fireside chat to reinforce the association's own referrer working group, established to address fraud risk across the broker channel, and said the industry could not "rest on our laurels" given the scrutiny the sector was under.

Closing his address, Kirkland said the principles underpinning the duty were straightforward even if the law was complex. "Knowing and understanding your customers, putting their needs before yours, taking a genuine interest in the quality of your work, dealing appropriately with complaints and reporting misconduct where you see it," he said. "Adhering to those principles won't just help you to comply with the law – it also helps us to do our job."

Drawing inspiration from Marvel icon Spiderman, “with power comes responsibility”, Kirkland reminded brokers in attendance.