Message from the MFAA CEO, Mike Felton regarding key issues, activity update and next steps.
As many of you know, the Exposure Draft and Explanatory Materials for the NCCP Amendment (Mortgage Brokers) Bill 2019 was released by the Federal Government for consultation on 26 August 2019.
The MFAA will be providing feedback to Treasury directly through a public hearing and via a written submission on 4 October and also through the Combined Industry Forum (CIF).
However, we wanted to provide you with an update on activity that is well under way to respond to this draft legislation, the key issues being addressed and the next steps following this consultation.
The legislation draws on the findings of the Royal Commission, Productivity Commission and ASIC Remuneration Review over recent years, and has been influenced by some of the reforms implemented by the CIF, ongoing advocacy and industry data.
The legislation is designed to introduce a 'Best Interest Duty' for brokers and legislate changes to remuneration practices to mitigate the impact of conflicted remuneration and ultimately, to continue to improve customer outcomes into the future.
As a first step, we have undertaken an extensive internal review of the legislation and explanatory materials and sought legal clarification on a number of areas. The legislation as drafted is broadly in line with what we expected, however, we have identified a number of issues, and some potential unintended consequences which relate to the drafting.
We also have identified some areas where the policy articulated through the legislation varies from what was previously stated, either in intent or substance.
We will be raising these questions with Treasury throughout the consultation process to garner a clearer picture of the impact of the legislation, and will be seeking amendments where necessary to ensure the reforms are appropriate to our industry and that brokers are not impacted beyond what is necessary to deliver appropriate customer outcomes.
The Key Issues
The legislation is complex and detailed. However, there are two main issues that will affect the mortgage broker channel - the Best Interest Duty and changes to remuneration.
In terms of the Best Interest Duty, this change is somewhat self-explanatory. In essence, brokers must act in the best interest of customers at the time credit assistance is given. Where there is a conflict of interest, brokers must give priority to the interests of the consumer in providing credit assistance in relation to credit contracts.
In addition, brokers and aggregators must not accept conflicted remuneration; and employers, credit providers and aggregators must not give conflicted remuneration to brokers or other intermediaries. The draft regulations state what monetary and non-monetary remuneration is considered to be non-conflicted.
These laws seek to help both broker and customer by reducing the potential for conflicts of interest which, in turn, may impact the advice consumers receive from brokers. They are intended to strengthen existing protections for consumers dealing with brokers. According to the draft, "they bring the law into line with what consumers expect - that any advice provided by a mortgage broker serves the consumer's interests first and foremost."
In terms of changes to remuneration, these draft changes are broadly as expected. Many of the items in the draft will give legislative effect to changes already introduced by the CIF.
However, there are a number of issues in the draft legislation that have the potential to create unintended consequences, such as likely increased churn, a limiting of broker activities and even the introduction of new conflicts. These require attention and further discussion.
As such, we are currently working through a process to help the Government and the regulator to ensure the legislation as drafted will achieve the outcomes intended, i.e. the policy intent.
Over the coming weeks, the MFAA will be providing feedback to Treasury directly, through a public hearing, and via a written submission. We will also engage with Treasury and provide feedback via the CIF. To help us formulate our views, we are consulting widely with brokers, aggregators and lenders.
Most importantly, we are holding broker roundtables in each of the mainland state capitals, the first of which occurred in Sydney on Thursday 5 September, before moving on to Adelaide and Perth this week and Brisbane and Melbourne next week.
The MFAA National Aggregator's Forum met on 4 September to discuss the draft legislation and a further meeting will be held prior to the end of the Treasury consultation period.
The input received from members at our roundtables and forums will be an important source for our response on this legislation, which we will submit to Treasury on 4 October.
This consultation is not the end of this process.
From here, Treasury will be working on drafting final legislation. If there are still issues with the draft legislation after this round of consultation, there will be opportunities to help shape the ultimate legislation, and the MFAA will continue to consult with you and engage with Treasury as the legislation is finalised.
Following legislation, there will be an explanatory guide produced, which will help answer many of the questions you may have about how to apply these changes, but that will not be for some time yet.
We will update you as we work through this process, but rest assured, we will continue to advocate with Treasury and the regulator to ensure the legislation is effective in continuing to improve customer outcomes, while protecting competition and ensuring a sustainable mortgage broking industry.
Chief Executive Officer
Mortgage & Finance Association of Australia (MFAA)