Check against delivery

I’d like to begin by acknowledging the traditional owners of this land, the Wurundjeri people of the Kulin Nation and by paying my respects to elders past and present – and I extend that respect to any Aboriginal and Torres Strait Islander people here today.

Introduction

What does it take to build trust as a mortgage broker? That’s the question I’ve been asked to explore with you today – consistent with the theme of the conference, as Jacqui mentioned.

And I’ll start with the short answer. Building trust means doing your work well, having a consistent and robust focus on the quality of advice provided and, where things go wrong, putting them right.

That might sound overly simplistic but I put it in those terms to make a point. While the laws governing the provision of financial services are complex, the principles behind them are straightforward.

They fundamentally come down to putting your customers first, especially where there may be conflicts. And, in the case of mortgage broking, that idea is very clearly articulated in the best interests duty.

It’s that duty that is at the centre of ASIC’s current mortgage broker review and what I’m going to focus on today. Because, in my view, the best interests duty is a blueprint for building trust.

ASIC’s mortgage broker review

One question I have been asked is why ASIC is doing this review of the mortgage broking sector and the answer to that is also simple.

Thematic reviews like this are something that ASIC does routinely across the different areas that we regulate. We use them to assess how well different entities and individuals are complying with the law. And we publish our observations. When we do that at the end, we use those to show what is good and what is not so good – and what that looks like.

We may do a review because we’re seeing evidence that raises concerns. That may be in the form of reports of misconduct from the public, or trends in internal or external complaints data, or reports by other licensees.

But equally it is part of our role to be curious about areas where serious harm could occur if firms aren’t complying with their obligations, especially where there have been recent changes to the law.

When it comes to broking specifically, home lending is the largest area of consumer credit in Australia, and today, 81 percent of new residential mortgages are arranged by brokers^[1].

That’s a big stake in a big market and with power comes responsibility. More customers mean more potential for harm, if things aren’t as they should be. Especially where borrowers are facing broader cost-of-living pressures.

We’re not due to complete our mortgage broker review until later this year, so it’s too early to talk about our observations. But while I can’t talk about what we’ve seen, I can tell you about what we expect to see. In other words, what good looks like.

As I said at the start of these remarks, ASIC expects to see mortgage brokers doing their work well, having a consistent and robust focus on quality and, where things go wrong, putting them right.

And that, in a nutshell, is what we’ve been looking at through our review.

Doing your work well

So, what does it mean for you, as a mortgage broker, to do your work well? And in particular, what does it mean in relation to the best interests duty?

It means recommending loans that work for your customers’ circumstances and priorities. With features that they want or need. At a price that’s appropriate, given the other offers available in the market.

It means documenting the reasons for your recommendations – and explaining those to the customer. So that when it comes time for them to make a decision, it’s an informed one.

Importantly, you should also record the steps you have taken to educate customers about the options available to them.

And that aspect of your work can’t be overstated. It goes to the heart of the best interests duty – and to your role as professional advisers.

Customers don’t always know what they want or need and that’s why they come to a broker – and acting in their best interests sometimes means giving them advice that may not be what they requested or expected. Respectfully, of course.

That’s an attitude that ASIC is keen to encourage of across all areas of advice, mortgage brokers included.

And that may mean, for example, explaining how the lowest interest rate doesn’t automatically equal cheapest or best value. Or why features that they may have requested are not in their best interests.

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.

We’ve seen recently, through a different review, the pitfalls of some financial advisers acting as order-takers, putting consumers into self-managed super funds, where that may not be in their best interests.

That’s not just bad for the consumer. It’s bad for the adviser. It could put them in breach of their obligations.

And it’s also the polar opposite of what it means to be a professional.

When we seek the services of a professional, it’s because we’re looking for expertise that we don’t have. We should receive advice – not merely administrative support. If the line between the two isn’t clear to the customer, it’s the duty of the professional to draw it.

A good professional is one who tells you what they should tell you. Not what you want to hear.

Focusing on quality

So how can you know that you’re doing your work well? How can you be sure about that? Well having a consistent and robust approach to quality is a core part of that.

Mortgage brokers are the first line of defence against misconduct within their ranks. Those who work hard to deliver a good service don’t want their reputations tarnished by the few who don’t. So, brokers have a strong interest in addressing poor behaviour where they see it.

Licensees too have an important role. They have the benefit of a birds-eye view – and all the obligations that come with that. Including the requirement to take reasonable steps to ensure their representatives comply with the best interests duty.

Whether you’re part of a small broking business or a large licensee, you should take a close interest in the quality of mortgage advice provided to customers – using all the data available to you.

That means identifying metrics appropriate to the nature of your business that you monitor on a regular basis in order to detect and address potential misconduct, before consumer harms can become widespread.

Whatever metrics you’re using, you should be reviewing them regularly to make sure that they’re relevant and risk based.

That of course requires an investment in resources. But we are encouraged by the fact that many licensees are expanding and improving the way in which they collect, store and structure critical data.

As professionals, practically all aspects of your work require the application of judgement. And that’s especially so when it comes to making – and checking – broker recommendations.

When reviewing brokers’ recommendations, you should take extra care to ensure the reasons given make sense in the specific circumstances, for the specific client.

It’s not enough just to document them. They have to be personalised and meaningful. 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.

Putting things right, when they go wrong

If you’re doing your work well – and taking a robust and consistent approach to quality – that should result in fewer complaints. But when things do go wrong, it’s essential that you put them right.

A poor customer outcome is bad enough. But if it’s followed by a poor complaints-handling experience (or none at all), trust can go from damaged to beyond repair.

It’s true there are relatively few broker-related complaints reported to AFCA. On the face of it, that’s a positive. But it shouldn’t be a cause for complacency.

ASIC receives intelligence from a range of sources, including reports from industry participants, lenders and other regulators. Over the past five years we’ve used our administrative powers on 17 occasions to remove or restrict mortgage brokers and brokerage firms from the industry.

So, complaint volumes aren’t the only indicator of consumer harm.

There’s also always a danger that complaints aren’t being identified as such – and dealt with as required under the law. And when they aren’t, consumers miss out on important rights.

That’s why compliance with internal dispute resolution (IDR) obligations has been a focus for ASIC in recent times – right across the financial services sector.

For our current review, we analysed hundreds of complaints made to licensees in relation to mortgage brokers’ best interests duty.

We looked at what happens – from the consumer’s point of view – when things go wrong. Whether those wrongs were being put right. And whether that is happening in good time.

And while that’s important for the individual consumers who make complaints, it also has broader significance.

IDR acts as an early-warning system for wider compliance issues. And to come back to my earlier point on metrics, this is an example of where you can be using data available to you to pinpoint poor outcomes. Before consumer harms can become widespread.

Licensees should also have clear complaints-handling processes in place and appropriate training for representatives.

When there’s a problem, most consumers will go back to the source. But if licensees aren’t being made aware of those complaints, that puts them at risk of non-compliance.

And while good record-keeping is essential, IDR is not a box-ticking administrative exercise. The standards and requirements set out in ASIC’s Regulatory Guide 271 on IDR are enforceable. And we have demonstrated that we are willing to enforce them through litigation.

Perhaps most importantly, though, effective IDR processes are essential for building trust – and that’s good for businesses as well as consumers.

Mortgage fraud

Lastly, while it’s not a focus of our current mortgage broker review, I want to turn briefly to the subject of mortgage fraud. Specifically, the well-publicised issue of syndicated mortgage fraud.

This newer and complex form of mortgage fraud involves coordinated conduct across multiple parties. In some instances, to facilitate other criminal activity.

ASIC is working closely with APRA and AUSTRAC, the lead agency on these matters, as well as with the police and major banks.

We are looking to better understand what controls, frameworks and operational settings are in place – with a focus on the roles of licensees, brokers and referrers.

As well as reminding licensees of their obligations to report to ASIC where they suspect misconduct by another licensee or representative, we encourage all industry participants to exercise vigilance.

This is an evolving and serious issue – and it’s in everyone’s interests that it’s comprehensively addressed, so as not to weaken confidence in the home lending sector as a whole.

Conclusion

In conclusion, I’d like to return to my earlier point about the laws that apply to your work.

While they may seem complex, they just provide a formal articulation of principles that should be important in any business. 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.

Adhering to those principles won’t just help you to comply with the law – it also helps us to do our job to ensure that all Australians can benefit from a financial system in which they can place their trust.

Thanks for your time and I’ll now be happy to join Anja for some questions.

^[1] Mortgage brokers reach record 81% market share in Australian home lending - MFAA