Industry bodies comment on higher fines
Both peak bodies for the mortgage and finance industry are reminding brokers of the importance of upholding high customer standards, as ASIC has now introduced higher penalties for non-compliance.
From July 1, 2023 (and every third annual July 1 thereafter), penalty unit amounts under the Crimes Act 1914 are indexed, resulting in increased fines applying across the board.
MFAA head of policy Naveen Ahluwalia (pictured above right) said that the increase in mortgage broker market share (69.6% of residential lending according to March figures), along with a number of other data points actively monitored by the MFAA, demonstrate that customers continued to look to enlist brokers’ service – a testimony to brokers acting in the best interests of their customers.
According to the legislation, the maximum penalty for individuals is now $1.565 million, or “three times the benefit obtained and detriment avoided”. The maximum civil penalty for companies is the greater of $15.65 million (or three times the benefit obtained and detriment avoided, or 10% of annual turnover capped at 2.5 million penalty units, currently $782.5 million).
White said that the increases meant that the penalty unit value administered by ASIC had increased from $275 to $313.
Acknowledging that brokers rarely stepped out of line, White said that the increases were a “timely warning” of the legal obligation to always act in the best interests of the borrower.
“What sets finance and mortgage brokers apart from banks and others is that we must act in the customer’s best interests, and this is a great point of difference,” White said.
Upon implementation of BID, White acknowledged that the maximum fine was $1.11 million.
“This is an increase of $455,000 or more than 40% and demonstrates the government’s determination to enforce regulations,” White said.
Complying with best interests duty
Considered by mortgage brokers to be “part of the DNA” of mortgage broking, best interests duty or BID is a principles-based duty, introduced to the industry in 2020.
BID remains part of the regulations, designed to ensure that consumers receive credit assistance that meets their objectives, financial situation and needs, requiring mortgage brokers to act in the best interests of the customer.
Commenting on the risk of brokers breaching BID requirements, White told MPA that the FBAA had not seen any common areas where this had occurred.
Under ASIC guidelines, it is good practice to present a customer with more than one option, unless there is good reason not to.
White said that there were situations where a broker was compliant with BID if there was only one option provided with no comparable choices. He provided an example where there may only be one or two lenders which were comparable or suitable (e.g. Sharia-compliant mortgages and other boutique facilities).
White said that he hadn’t received any indication that the government was focusing on BID compliance specifically, noting that it formed part of the process of reviews of fees and penalties.
Brokers who are doing the right thing have nothing to be concerned about, noting that it is important to be aware and not to take shortcuts, he said.
Ahluwalia told MPA that the MFAA had consistently monitored the embedment of BID within the industry. The industry body actively monitors a variety of data, including broker market share, and proactively engages with regulators, the Australian Financial Complaints Authority (AFCA) and financial counsellors.
As a result of this monitoring, the MFAA is aware that complaints to the ombudsman remain low, representing less than 0.5% of all banking and finance complaints.
Additionally, Ahluwalia said that currently, under 0.3% of all calls to the national debt helpline related to mortgage brokers. “All those data sets tell us that [that BID] is well embedded within the industry,” Ahluwalia said.
A recent estimation by ASIC of levies for the 2024 financial year showed a decrease in projected ASIC levies for the industry, which Ahluwalia said showed that ASIC activity in relation to the industry was low.
“As peak industry body, we remain vigilant in terms of continuously looking at data and trends, but it is very positive and from our view, BID is well embedded within the industry,” she said.
Ahluwalia said that BID would continue to evolve within the operating environment, noting that brokers were providing support that was fit for purpose in the current environment.
Solid privacy practices important
Aside from BID, Ahluwalia said that maintaining sound privacy practices within a broking business was another important facet of regulation from a legal and security perspective.
The trust that customers put in their brokers extends to how their broker manages their personal information, she said.
“Having good privacy practices, making sure they’re protecting their customers’ personal information, ensuring that it’s secure and used it for the purpose that the information is provided, are all things brokers need to be very mindful of as well,” Ahluwalia said.
In response to whether the government was taking a tougher stance on non-compliance with BID, Ahluwalia said that the MFAA’s role was to monitor data and stay ahead of trends, which included proactively liaising with government to explain the regulatory environment and support policy making.
At meetings held with senior ministers and regulators, White said that he was often complimented on the level of integrity across the mortgage and finance industry and the way brokers conduct themselves, feedback he says “we should be proud of”.
What is your view on the level of compliance within the mortgage and finance industry – and should brokers be concerned about the penalty increases? Share your thoughts in the comments section below.