Treasury has released submissions from its first round of consultation on the federal government’s best interests duty bill.
Among the stakeholders to consult with Treasury regarding its proposed reforms was the Association of Financial Advisers (AFA), which has sought to provide guidance that draws on the experiences of the financial advice sector following the implementation of its own best interests duty.
In its submission, the AFA has urged the federal government to extend the consultation process for its mortgage broking reforms, stressing the importance of clarity regarding the specific obligations of stakeholders prior to implementation.
“Whilst it seems that it is easy to recommend that mortgage brokers be bound by a best interests duty, in reality it is much more complicated to implement such a recommendation,” the AFA stated.
“[The] experience with the application of the best interests duty for financial advisers should stand-out as a strong warning that this is much more difficult and complicated than would be suggested by a simple statement in a royal commission final report.”
The AFA noted that given that most home loans are originated through the broker channel, prospective reforms, including the best interests duty, should carefully examine the implications of changes to the law, which, as acknowledged by the royal commission, could affect “access to and the cost of financial services for consumers, for competition in the financial sector and for financial system stability”.
The AFA continued: “Until this is acknowledged and taken seriously, then it seems likely that we will continue to see this complete failure to follow due policy process.”
The association also pointed to page 72 of the royal commission’s final report, in which commissioner Kenneth Hayne stated that the best interests duty for mortgage brokers “is not an obligation that should affect the practices of lenders and, accordingly, it is not a change that should affect the price or the availability of credit”.
According to the AFA, such a statement has failed to recognise that recommendations like the best interests duty, which impact the cost of distribution of credit, “will also impact the availability of credit”.
“We would suggest that an honest assessment of the implications of this reform would require consideration of systems changes, process changes, documentation requirements, cost implications, mortgage broker and staff training, and audit processes,” the AFA added.
“Once again, we find it totally remarkable that there is no discussion of the implications of any of these factors.”
In light of its concerns over the hasty implementation of the best interests duty on mortgage brokers, the association has recommended that the commencement date be deferred from 1 July 2020, as currently proposed.
“In the context that this is unlikely to be legislated by the end of the year, this will leave a ridiculously short implementation time frame,” the AFA stated.
“Does the government seriously want to put 60 per cent of the home loan market in jeopardy by imposing a completely new obligation with no guidance, in an unachievable time frame?
“In our view, this is totally impractical.”
More guidance around how the best interests duty applies in practice is expected to be released by ASIC before the end of the year, which Mr Haron said would be “almost as crucial as what’s in the legislation”.
Wow, the AFA has come out very hard on this. Too bad it’s to support brokers and they haven’t used this same strength to supported planners. #horsehasbolted
maybe lawyers should have to comply with best interest before they start dishing it out to other occupations
Over Bloody Complicated ODwyer who implemented without prior proper consultation the biggest reforms to Super that is an absolute admin disaster of excess costs and admin red tape regs.
ODwyer then stuffed Life Insurance with LIF to try to help the Life Institutions sell extremely dodgy Direct Life Cover. How’s that going
ODwyer, quality Life policies they are -NOT !!
FARSEA, ODwyers Law unto themselves totally out of control, conflicted BS group, that’s going well too isn’t it.
Frydenberg has been involved in all these too and now this clown is plunging head long into the RC Recco’s with not a single care in the world to Small business red tape BS regulation.
ODwyer and Frydenberg Both ex Bank execs that are killing small business.
The worst Liberal Govts over last 2 terms ever to small business.
Absolute morons !!! No wonder the economy is slowing with your BS red tape regs everywhere.
No wonder the economy is dead. The government has strangled the finance industry with compliance, and all their spending is for public spending, probably to enforce compliance. The private sector is dead.
Who would have believed a Liberal government would implement ALL of any RCs recommendations, without checking on the impact on small business. There are thousands of RC reports on shelves in Canberra with totally un-realistic recommendations, that will never be actioned. Yet this Treasurer wants to wear a breast-plate saying he is remembered for two things – a Budget surplus and full implementation of Hayne, forgetting, once again, that the banks will be the main beneficiaries of Hayne, in terms of impacting on small business advisers and brokers.