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ASIC review sharpens credit licensees' supervision

13-046MR ASIC review sharpens credit licensees' supervision of representatives engaged in mortgage broking

Wednesday 13 March 2013

An ASIC review has prompted significant improvements to credit licensees' practices for ensuring their mortgage broker representatives' compliance with national responsible lending laws.

Improvements include licensees:

  • commencing regular formal reviews of their representatives' compliance

  • upgrading IT systems to better track credit assistance provided by their representatives

  • ensuring they have direct access to their representatives' preliminary assessments of whether a credit contract will be unsuitable for a consumer and all documents supporting those assessments, and

  • considering a broader range compliance risks when undertaking compliance reviews.

    Report 330 Review of licensed credit assistance providers’ monitoring and supervision of credit representatives (REP 330) covers 18 licensees who are responsible for over 60% of mortgage broker representatives, and specifically looks at their processes for ensuring their representatives' compliance when providing credit assistance for home loans (i.e. mortgage broking).

    ‘The review was undertaken as part of ASIC's strategic priority to ensure confident and informed financial consumers. Licensees with large numbers of representatives act as gatekeepers as they are responsible for their representatives' compliance with the credit legislation,' ASIC Commissioner Peter Kell said.

    ‘Given the significant concentration of responsibility for credit representatives among a limited number of licensees, these licensees must have robust processes in place to ensure compliance with the national credit legislation and associated protection for consumers,’ Mr Kell said.

    Although ASIC found the licensees implemented various monitoring and supervision processes prior to the review, ASIC also identified a number of compliance risks, including licensees:

  • not being able to identify all instances of credit assistance being provided by each of their credit representatives

  • not having direct access to preliminary assessments, or the documents that form the basis of the assessment, and

  • not having appropriate practices in place to undertake compliance reviews of their credit representatives.

    'ASIC's report recommends eight ways for licensees to reduce their risk of non-compliance and outlines a number of instances of good practice which, if adopted, will help licensees meet their obligations,' Mr Kell said.

    The review also found a marked reduction in mortgage brokers suggesting and assisting borrowers to apply for low doc loans, coinciding with the commencement of responsible lending laws. The volume of credit assistance for home loans promoted as low doc in the three months after 1 January 2011 – when the responsible lending obligations commenced for most home loan lenders – was nearly half that of the three months before.

    ASIC is currently reviewing how credit providers are complying with responsible lending obligations when providing home loans promoted as low doc. A report is expected later this year.


    REP 330


    REP 330 follows Report 262 Review of credit assistance providers’ responsible lending conduct, focusing on ‘low doc’ home loans (REP 262), which was released in November 2011.

    Under the National Consumer Credit Protection Act 2009 credit licensees have a number of general conduct obligations, including:

  • ensuring that their representatives are adequately trained and are competent to engage in the credit activities authorised by the licence, and

  • taking reasonable steps to ensure that their representatives comply with the credit legislation.

    There are approximately 6,000 credit licensees with over 27,000 credit representatives. The 25 credit licensees with the most credit representatives are responsible for over 70% of all credit representatives.

    Although the review focused on licensees’ supervision of credit representatives, many of the recommendations are relevant to the supervision of representatives more generally, including employees and other persons acting on behalf of licensees.


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