Australia: Regulating Mortgage and Finance Brokers

Last Updated: 1 June 2005
Article by Paul Rubenstein

Towards the end of 2004 the Ministerial Council on Consumer Affairs (CCA) published a discussion paper proposing a uniform national regulatory scheme for finance and mortgage brokers in Australia. This update summarizes the paper's recommendations.


Notwithstanding the relatively significant size of the broking industry in Australia – a 2003 survey estimated that the industry generated A$630 million in that year alone – there is no national scheme for the regulation of brokers. Therefore, the broking industry is currently subject to varying degrees of regulation at the state and territory level.

As a consequence of unprecedented growth in the broking industry and increasing levels of consumer detriment, consumer advocates and the industry called for the federal government to consider regulating the broking industry at a national level. The CCA was charged with devising a regulatory scheme covering entry requirements, standards of conduct and dispute resolution within the broking industry. The scheme was intended to achieve the following objectives in order to remedy concerns about the industry:

  • giving consumers the opportunity to choose a finance broker who is competent and will act in their best interests;
  • providing consumers with sufficient information to choose a suitable broker;
  • requiring brokers to demonstrate that their recommendations are appropriate to the consumer's circumstances and the best available;
  • providing consumers with effective remedies against brokers who do not act fairly or competently, thereby providing consumers with the means to influence brokers' behaviour; and
  • excluding fraudulent brokers from the marketplace.


The paper defines a 'mortgage or finance broker' as:

"a person who acts, or purports to act, as an intermediary to negotiate or obtain credit for a person (other than the intermediary's employer, or a principal who is not the client of the intermediary) in return for a commission or financial benefit, whether payable to the intermediary by the person, the credit provider or any other person or body."

Scope of the scheme
The paper proposes that the scheme cover all credit transactions except where the applicant is a business entity and:

  • the credit sought is more than A$2 million;
  • the business employs more than 100 people if it is a manufacturing business; or
  • the business employs more than 20 people if it is not a manufacturing business.

The following are the main features of the proposed national regulatory scheme:

  • All brokers must be licensed in order to operate. The licensing process would involve a 'fit and proper person' test involving various solvency and criminal probity checks.
  • Practising brokers would undergo ongoing training to meet minimum competency standards. The requirement would operate in a similar manner to the current Australian Securities and Investments Commission (ASIC) scheme for the provision of financial services advice.
  • Brokers would enter into written contracts with a client before acting on the client's behalf. This written contract would contain details of the client's credit requirements and the broker's access to credit providers. The disclosure requirements would extend to commission arrangements between the broker and credit providers.
  • Upon recommending a product, a broker must provide the consumer with a statement of reasons for recommending that product. The reasons must address why the recommended product is the most appropriate for the consumer's circumstances.
  • A broker must have a reasonable basis for recommending a particular financial product to a customer.
  • A broker must be a member of an ASIC-approved alternative dispute resolution scheme. This requirement is designed to utilize ASIC's well-established standards for alternative dispute resolution schemes in the financial sector.
  • A broker must hold a certain level of professional indemnity insurance.
  • There will be criminal offences and civil remedies for breaches of legislative requirements. The civil remedies would allow consumers to seek compensation where they have suffered detriment. Such remedies would also address the issue of excessive fees or commissions charged by brokers.

Although the proposed scheme falls short of establishing agency connections between brokers and credit providers, the paper proposes that where both a broker and a credit provider are involved in any unfair conduct there should be an opportunity for the parties to be joined in the proceedings or for one party to be able to claim compensation from the other. The paper specifically notes that, except in limited circumstances, the credit contract itself would not be affected.

Industry Response

The CCA has received responses to the paper from key industry organizations. The two largest mortgage and finance broking industry associations, the Mortgage Industry Association of Australia and the Finance Brokers Association of Australia, both issued preliminary responses ostensibly supporting the concept of the national scheme outlined in the paper. However, the Mortgage Industry Association did raise minor concerns about the burden imposed by licensing fees on small mortgage broking businesses, while the Finance Brokers Association, in its response to the paper, highlighted the impact of the broking contract requirement on lease and chattel brokers as an area of concern due to the short timeframe in which such transactions occur.

The CCA plans to review all submissions before it releases a supplementary paper later this year.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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