Brokers must be adult in the room when compliance is on the line
Elise Ivory (pictured), partner at law firm Dentons and mortgage finance regulation expert, sat down with the Mortgage and Finance Association of Australia’s (MFAA) policy and legal executive Naveen Ahluwalia on Thursday to discuss the hot-button regulatory issues impacting to broking sector.
Alongside discussions about responsible lending and serviceability assessments, Ivory led a deep dive into the oft-times confusing world of the Best Interests Duty (BID).
Here’s what Ivory had to say at MFAA’s ‘Keeping compliant in 2025’ webinar.
A quick overview
BID was introduced as a legal obligation for mortgage brokers as part of the National Credit Code (NCC) following the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
As a reminder, the key reforms introduced following the Banking Royal Commission were:
- Best Interests Duty and Conflict Priority Rule: Requires financial advisers to act in the best interests of their clients and to prioritise their clients' interests over their own
- Net to offset commission structure: Broker commissions are reduced by the amount held in a borrower's offset account. This is to discourage brokers suggesting bigger loans than are necessary
- Clawback provisions: If a borrower refinances or repays a loan within a set period (typically 12–24 months), the mortgage broker must return part or all of their commission to the lender. This is to discourage brokers from recommending unnecessary refinancings to bag a quick commission. Brokers cannot pass this cost on to borrowers
- Ban of volume-based and campaign-based payments: Prohibits financial institutions from offering incentives to brokers based on loan volumes or specific sales campaigns
- Restrictions of “soft dollar” benefits: Limits non-monetary benefits (such as travel, gifts, and hospitality) that financial institutions provide to advisers
- Reference-checking protocol: Requires financial firms to conduct thorough reference checks on financial advisers and brokers before hiring them
BID’s roots lie in a review of mortgage broker remuneration (Report 516) conducted by the Australian Securities and Investments Commission (ASIC) in 2017. This review led to the implementation of a number of self-regulatory reform initiatives which “improved consumer outcomes, reduced conflicts of interest and strengthened governance within the mortgage broking industry,” said Ivory.
Following the Royal Commission, BID was fully rolled out in 2021. It has been roundly welcomed by mortgage brokers as it has made borrowers more inclined to place their trust in brokers, leading to a higher-than-ever share of the mortgage market.
As MFAA chief executive Anja Pannek said in the latest Value of Mortgage and Finance Broking 2025 Report, BID “has only strengthened the trusted relationships brokers have built with their clients. We see this through the increasing size of the industry and mortgage broker market share.”
But while brokers mostly get it right when it comes to adhering to BID, there are some things they could be doing better.
Three out of four ain’t bad
The four key tenets of BID, as explained by Ivory, are:
- acting in the best interests of the consumer
- making informed recommendations
- avoiding conflicts of interest
- providing evidence of compliance
“Most brokers I know are doing the first three things and doing them really well, but you can do the first three… but if you don’t write it down no one will know,” said Ivory.
Providing evidence that you are doing everything else to the letter of the law “is really just as important”, she said. This is particularly relevant when the Australian Financial Complaints Authority (AFCA) gets involved and wants to see your records of discussions and file notes.
“Usually there’s really good systems for capturing that information, so make sure you’re using those,” said Ivory.
Addressing other potential blind spots, Ivory reiterated that “once somebody is a mortgage broker, (BID) will actually relate to any (regulated) loan they are introducing, or any (regulated) loan they are brokering, including if it’s an asset finance one.”
“The NCC is not prescriptive in terms of how you go about meeting Best Interests Duty,” said Ivory. “There’s no safe harbour – mortgage brokers will have to take all steps necessary to ensure they act in the best interests of the consumer.
“The risk of non-compliance is substantially increased if a broker’s processes typically lead to a one-size-fits-all outcome for consumers. Like responsible lending, it is a very individualised obligation that you have to apply to a customer's individual circumstances.”
Agreeing to disagree
One of the most interesting points Ivory raised during the MFAA webinar was how BID often requires a broker to disagree with their client.
“It may be that the customer doesn’t actually know what their best interests are,” said Ivory. “They may say they want to pay for a loan with all the bells and whistles that has offsets and fancy features … but they really have no money to put into offset, they really just need a simple loan that they will repay back quickly.”
It’s just one example of many, but the message stays the same – brokers are there to be the voice of authority in the room, the one who can guide their client to the best deal possible, even if that results in a smaller commission.
This may involve carefully steering a customer away from a particular product; capitulating to customers’ demands, noted Ivory, could find yourself in breach of BID.
“(Borrowers) may not understand what their interests are, so brokers really need to get to the bottom of that for them,” said Ivory.
The importance of choice
Under BID, “brokers need to consider a range of products before making a recommendation”, said Ivory. “It’s therefore important to have a wide panel so that you can have a lot of options for your customers.”
Brokers also need to be assessing the interest rates that are applicable, the fees and charges, loan features and their suitability, and how they will fit with the customers goals, she added.
As an example, Ivory suggested that for a customer who wants to make large lump-sum repayments regularly, “a fixed-rate loan is probably not going to work for the purpose unless there’s allowances to make lump-sum repayments”.
A major part of making informed recommendations, said Ivory, “will be around educating the consumer to make informed decisions. It will also be around understanding what both their long-term and short-term goals are”.
Where does it end?
Mortgage brokers are increasingly branching out into commercial finance to maintain as diverse an offering as their clients expect. This raises a pertinent question – where does BID stop being applicable?
Put simply, “it will not apply for unregulated loans”, said Ivory. “If a mortgage broker is also doing small-business loans, it will not apply to those small-business loans.”
She added that brokers “should be making it really clear to their customers that it doesn’t apply” in these instances. However, consumer asset finance loans, personal loans and credit cards are all regulated and therefore BID applies.
