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Compliance Requirements
Former lecturer at Macquarie University

ortgage brokers are faced with importance compliance
requirements created by legislation and also arising from case
law. The most overreaching of these were introduced by the
National Consumer Protection Act 2009 that brought in major changes to
the way to the way credit is provided in Australia. Some of these, such as
the licensing requirement and the need to have ISR and ESR schemes in
place have already been discussed. Not touched on so far are the
responsible lending and disclosure provisions.
Other relevant compliance matters introduced by legislation include the
requirements of privacy legislation and the false and misleading conduct
and unconscionable conduct provisions of the Australian consumer law. 1
There are hearsay accounts of banks being prepared to overlook breaches
of these requirements when they deal with mortgage brokers. If that is the
Peter Andrews is a specialist trainer in case, any encouragement not to take a very strict approach must be
Financial Planning. resisted. At law, it is the mortgage broker that is in an agency relationship
with the borrower, not the bank. It is therefore the broker who may be
After an early career in corporate finance
and banking, Peter became a lecturer at
subject to a banning order and, if fraud is involved, imprisoned.
Macquarie University.
He has also taught in the Graduate
School of Management at the University THE RESPONSIBLE LENDING CONDUCT OBLIGATIONS ..................................2
of Sydney and the School of Banking and
Finance at the University of New South
APPLICATION OF THE NCCP ACT .......................................................................2
Wales. OBLIGATIONS UNDER THE NCCP ACT ............................................................2
THE MORTGAGE BROKER’S OBLIGATIONS ...........................................................2
Peter has a Bachelor of Arts and a
Bachelor of Economics from the THE LENDER’S OBLIGATIONS ............................................................................6
University of Sydney and a Master of DOCUMENTARY REQUIREMENTS ..................................................................7
Business Administration from the
University of Florida. He is also a CREDIT GUIDE ...............................................................................................7
Certified Practicing Accountant. WRITTEN PRELIMINARY / FINAL ASSESSMENT OF UNSUITABILITY .............................7
AUSTRALIAN CONSUMER LAW PROTECTION ................................................7
FALSE AND MISLEADING CONDUCT ....................................................................8
UNCONSCIONABLE CONDUCT ...........................................................................8
OTHER RELEVANT LEGISLATION ....................................................................9
PRIVACY LEGISLATION .....................................................................................9
ANTI-DISCRIMINATION LEGISLATION ..................................................................9
(AML/CTF ACT) ........................................................................................11
CORPORATIONS ACT 2001 ............................................................................11
KEEPING UP TO DATE ..................................................................................12
ESTABLISHING A COMPLIANCE CULTURE ....................................................12
AN AUDIT OF COMPLIANCE .........................................................................12

1 The Australian consumer law is set out in Schedule 2 of the Competition and Consumer Act

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Even after her investments were sold, she was left living
THE RESPONSIBLE LENDING in a rented caravan with debts of $300,000 she was

The responsible lending provisions were introduced into Unfortunately, lending that impoverishes borrowers still
the National Consumer Credit Protection Act 2009, with occurs. Now, however, with the availability of EDR
enactment phased in over the following years. From services such as FOS, it is more likely to become
now on the Act will be referred to in the text by its apparent with a greater chance of a remedy being
usual abbreviation – NCCP Act. provided. As well, the responsible lending obligations
standards of lending have been set by the NCCP Act
To a large extent, the NCCP Act was a reaction to very
with ASIC having power to take action when they are
poor lending practices involving a banking product
known as “margin lending”. The problem was not so
much with the product, but rather with the way it was
Not all loans are covered by the NCCP Act. In broad
Margin loans are a form of investment loan, and they
terms it applies to almost all types of personal
are commonly applied for the purchase of shares. They
borrowing, with the specific exception of:
became very popular in years before the GFC, with
borrowers using margin loans to purchase 80%, or even  investment loans for shares; and
more, of a share portfolio with their equity making up  short-term loans (under 2 months) with very low
the difference. That meant that they were buying a interest and fees as a percentage of the loan (i.e.
comparatively large portfolio with only a 20% or lower
“payday” loans).
equity contribution.
Loans to “natural persons” for property investment,
Investing of that kind works very well if the market however, are included.
continues to rise, but when the market fell in 2007 it
worked the other way. There were two periods in 2007, Business loans are excluded, although if a loan has a
one in February and another in November, when mixed business and personal purpose, the loan is
pockets of investors found that their margin lending regarded as a personal loan, and therefore subject to
debt exceeded the value of their investment portfolios. the NCCP Act, if more than half the goods and services
That meant that they lost other assets as well, and in purchased by the loan are for personal purposes.
many cases that included the family home.

The banks providing the loan facilities should have been OBLIGATIONS UNDER THE NCCP
more careful, and they have largely been forced to pay
compensation. The main drivers of margin lending at ACT
the time, however, were two financial planning firms, The NCCP Act places separate responsibilities on a
Storm Financial and Opus Prime. mortgage broker (or other credit provider) and a credit
provider (e.g. a bank, other lending institution,
A Senate Committee of Inquiry – the Rippol Inquiry – mortgage manager, etc.).
met to review the situation in 2008, and their
recommendations were largely introduced in the NCCP
Example – Pre-GFC margin lending A mortgage broker (or other credit representative) is
Many Storm Financial clients were on low incomes, required to carry out a preliminary assessment to
such as Tracy Richards, a 46-year old receptionist on an determine whether a proposed credit contract is
annual salary of $45,000. She received a $1.48 million “unsuitable”. 3 This is known as the “unsuitability test”.
margin loan from Macquarie Bank, including an annual Provision is made in the Act for a consumer to receive a
interest bill of around $115,000. written copy of their unsuitability test on request.

To qualify for the margin loan she used her entire life
2 Stuart Washington, ‘A $1.48 million margin loan on a salary of
savings as well as the proceeds of the sale of the
$45,000’, SMH, 20 June 2009.
Brisbane home she shared with her three children. 3 NCCP Act, s.116 (1)(a)

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In carrying out an unsuitability test, the mortgage Enquiries About Requirements and
broker must carry out the three required steps set out Objectives
in Table 1.
All loans must meet the borrower’s objectives
Table 1: Steps required for the unsuitability test 4 Matters that ASIC considers relevant when making
Step 1: Make reasonable enquiries about the inquiries concerning requirements and objectives
borrower’s requirements and objectives include:

Step 2: Make reasonable enquiries about the  the amount of credit needed or the maximum
borrower’s financial situation amount sought;

Step 3: Take reasonable steps to verify that financial  the timeframe for which it is required;
situation  the purpose and benefit sought; and
 whether the consumer seeks particular product
The information obtained through this three-step features or flexibility, and understands the costs of
process allows the unsuitability test to be applied. these features and any additional risks. 6

A loan is to be regarded as unsuitable if either or both Notice that this is substantially more than a simple
the conditions set out in Table 2 are met. description such as “purchase house”. However, the list
does not include such matters as investment risk and
Table 2: Unsuitability test conditions5 the client’s attitude to risk. A mortgage broker is an
Condition 1: The contract will not meet the arranger of finance, not an investment adviser.
borrower’s requirements or objectives.
Enquiries About Financial Position
Condition 2 The borrower will be unable to comply
with the borrower’s financial obligations ASIC suggests that the following matters are relevant
under the contract, or could only comply when making inquiries concerning financial position:
with substantial hardship  the consumer’s amount and source of income,
including the length and nature of their
The unsuitability test does not take the place of the
credit decision that must ultimately be performed by  the consumer’s fixed expenses, such as rent,
the lender. It does, however, place an obligation on the repayments to other loans/debts, child support,
mortgage broker to collect suitable information and insurance;
verify it, as well as an obligation to weed out  the consumer’s variable expenses;
applications that are unsuitable.
 any existing debts that are to be repaid from the
Failure to carry out these obligations may be due to loan;
fraud, such as the deliberate misstatement of  the consumer’s credit history;
information intended to increase the chance of
acceptance by a lender, in which case the most likely  the consumer’s age and number of dependants;
penalty is imprisonment. Alternatively, it may be due to  the consumer’s assets;
carelessness in collecting or verifying information, in
which case ASIC may apply a banning order.  reasonably foreseeable changes, such as the end of
a honeymoon period on a loan, impending
The responsibility lending provisions must be taken retirement, or the end of seasonal employment;
seriously. and
 geographical factors, such as remoteness (which
may increase expenses). 7

4 NCCP Act, s.117(1) 6 ASIC Regulatory Guide 209.33

5 NCCP Act, s.1189(2) 7 ASIC Regulatory Guide 209.32

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Verifying Financial Position lender or a new customer.12

ASIC has not suggested the verification procedures that Generally, ASIC’s scalability requirement refers to
might be required. The Financial Ombudsman Service different types of product rather than individual
(FOS), however, has stated that the following should be consumers with the same product type. The same
considered mandatory8: factors relevant for considering scalability are also
 verification of PAYG income by reference to relevant for determining the appropriate mode of
payslips; or inquiry – for instance, whether the inquiries should be
made one-on-one with the consumer (either face-to-
 verification of self-employed income by reference face or by ‘phone) or whether it is sufficient to make
to tax returns and bank statements. inquiries via questions on the application form. For
example, a housing loan for $500,000 would involve a
In the view of FOS, both the amount and certainty of greater scale of inquiries, including face-to-face contact,
the income should be considered.
ASIC, however, also expects more intense inquiries to
When Substantial Hardship Exists be made in other situations, for instance where:
The NCCP Act leaves “substantial hardship” largely  the consumer has limited capacity to understand
undefined. In another context ASIC has suggested that the credit contract or their payment obligations
substantial hardship exists when “the person is unable under the contract – for example, where the
to meet reasonable and immediate family living consumer has limited English-speaking skills;
 the consumer has conflicting objectives;
The Act does, however, say that financial hardship  the consumer is confused about their objectives (or
would be presumed to exist if the consumer can only has difficulty articulating them); or
repay the loan by selling his or her principal place of
residence “unless the contrary is proved”.10  there is an apparent mismatch between the
consumer’s objectives and the product being
ASIC takes the view that this means that borrowers considered by the consumer.13
should generally be able to meet their repayment
obligations from income and liquid assets rather than ASIC further recognises that fewer inquiries would need
the sale of assets, although there are exceptions where to be made in the case of an existing client. This is
this is not a reasonable position, for example in the case reasonable because much of the required information
of reverse mortgages or bridging loans.11 would be on file anyway.

Scalability of the Unsuitability Test Where Mortgage Brokers May Fail to Comply
ASIC has advised that the enquiries a lender must do to In its annual reviews ASIC has expressed satisfaction
carry out an unsuitability assessment will vary that mortgage brokers and other credit providers are
depending upon the type of consumer and the type of for the most part making reasonable enquiries about
product. Relevant factors include: the purpose of the loan and the financial position of the
applicant, as well as reviewing the documentation
 the potential impact upon the consumer of required for verifying the applicant’s financial position.
entering into an unsuitable credit contract;
 the complexity of the loan arrangement; There have, nevertheless, been a number of instances
of failure to comply.
 the ability of the consumer to understand the
credit contract; and
 whether the consumer is an existing customer of a

8 Financial Ombudsman Service circular, March 2011

Superannuation Industry (Supervision) Regulations,
10 NCCP Act, s.118(3), 131(3), 142(3) & 156(3) 12 ASIC Regulatory Guide 209.
11 ASIC Regulatory Guide 209.102 13 ASIC Regulatory Guide 209, TABLE 3.

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The most serious ones have involved deliberate Example – Relying on a third party source
falsification of the incomes of borrowers in order to
have a loan approved by a lender. This is an also a form On 7 November 2013, ASIC announced that it had
of fraud regarded as “false and misleading conduct” banned Melbourne mortgage broker Mr Tony Quach for
under Australian Consumer Law (discussed later). In five years and cancelled the Australian credit licence of
such a situation there may also be more fraudulent his company TQ Smartchoice Pty Ltd after an
activity such as providing a false occupation and forging investigation found failure to comply with credit laws.
documentation. The most likely penalty with such
ASIC found that between December 2010 and
offences is a jail term under criminal law provisions.
December 2011, Mr Quach, through TQ Smartchoice
Pty Ltd, submitted six home-loan applications to two
Example – Finance broker jailed for serious lenders that contained false or misleading information.
fraud In all instances, Mr Quach obtained information and
In 2012, a highly regarded and award-winning finance documents from a source other than the applicants and
broker from Western Australia, Kate Thompson, was failed to verify that information with the applicants.
jailed for five years on several charges of fraud. She had
been earning up to $5,000,000 a year, but it appears ASIC has dealt with a number of cases where the
most of her business involved providing credit to people mortgage broker has failed to verify an applicant’s
with little to no expectation they will be able to repay income details.
the entirety of the loan. This fraud was achieved by
fudging the income and assets of clients, making them Example – Failing to verify information
appear much wealthier on paper than was the case.
On 16 April 2013, ASIC announced that it had banned
Ms Thompson obtained most of her clients from the Mr Arthur Sperling, a Sydney-based mortgage broker,
Mormon Church, of which she was a member. from engaging in credit activities for 5 years and
Admitting her guilt, she described her clients as “just cancelled his Australian credit licence after an ASIC
old people who didn't do much more in their day than investigation found that between October 2010 and
cook their dinner and do a bit of gardening”, and yet November 2011, Mr Sperling submitted 10 home loan
she admitted describing them as a “professional applications to four lenders without independently
something, anything” in loan documentations. verifying the income and employment details of the
borrowers before submitting the loan applications to
Her clients had also been encouraged to invest in a the lenders.
property scheme that in the end was little more than a
Ponzi scheme, with incoming client investment money In doing so, ASIC regarded him as being reckless as to
being used to fund promised 17.5% returns. 14 whether the income and employment details supplied
to the lenders were false or misleading.
Ms Thompson was jailed. ASIC banned her for life once
the sentence was announced. Sometimes falsification of income is accompanied by
the misuse of “low doc” loans. Since the falsification of
Other instances of failure to comply with the income involves fraud, criminal penalties are likely to
responsible lending provisions involve failure to apply.
properly obtain required information or failure to verify
it. Example – Fraudulent use of “low doc” loans

There is a presumption in the Act that the “reasonable On 10 October 2008, a former Canberra mortgage
inquiries” would be made to the applicant. Certainly broker pleaded guilty in the ACT Magistrates’ Court to
asking a third person for the information would not seven charges following an investigation by ASIC.
normally be a suitable approach.
He was charged with one charge under s126(2) of
the Crimes Act 1900 (ACT) and six charges under s347
of the Criminal Code 2002 (ACT) after an investigation
into his conduct between December 2003 and
14 Michael West, A costly six degrees of separation’, SMH, 14 April September 2005.
2012; Stephen Long, ‘Broker blows whistle on sub-prime scandal’,
ABC News, 14 April, 2012.

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The charges related to knowingly using false In the Kate Thompson case referred to earlier all of the
accountants’ letters with the intention of inducing a major banks were involved and they must have been
lender to approve low-documentation (low-doc) loans providing credit for many years to her “old people” who
for seven borrowers. Without this false documentation, spent most of their time “cooking” and “gardening”.
these borrowers may not have successfully secured the Certainly, there does not appear to have been any
necessary finance.15 evidence of the banks using documentary evidence
such as bank statements and tax returns to verify the
The Law Relating to Principal and Agent occupation status and financial circumstances of Ms
Thomson’s clients.
Under the law relating to principal and agent credit
licensees who are acting within the knowledge and Where there has been a broker involved, there is little
authority of an Australian credit licensee cannot be ASIC can do if a lender has failed to comply with the
separately sued. This, however, is not the case if they NCCP Act provisions because it is the broker who is
act outside the authority of the licensee and in their directly involved with the client. For the same reason,
own interest. the contract cannot be set aside. However, if the
borrower takes the matter to external disputes
Depending on the circumstances, therefore, ASIC may resolution (EDR), the EDR body can persuade the lender
take action against a licensee or a broker who is an to lessen, and sometimes substantially lessen, the
agent of the licensee. borrower’s repayment obligation. The justification for
the approach is that, in failing to carry out proper
THE LENDER’S OBLIGATIONS checks, the lender failed to act prudently as required by
its industry code of practice.16
Once the mortgage broker has carried out a preliminary
assessment and forwarded the loan application to the
Lenders usually follow the persuaded approach to avoid
lender, the lender is responsible for a separate final
the matter being taken to court where case law may be
unsuitability assessment, which is generally referred to
used against them.
as the ‘final assessment’.

Final Assessment Example – Lender fails to check details

At the stage of the final assessment, the lender has all Julia Eastland, a 71-year-old pensioner from Perth, who
of the information collected by the mortgage broker, was one of Kate Thompson’s clients, took out a loan of
including the documentary evidence that has been $248,500 on Ms Thompson’s advice, using her family
collected. home as collateral. Her income and asset details were
falsely stated and she was written down as being self-
ASIC expects that the lender will look for such matters employed. The lender, a leading bank, did not check
as omissions and inconsistencies, consider any other these details.
information that might be available, and then make its
own unsuitability review based on its internal The Financial Ombudsman Service (FOS) found that Ms
assessment procedures. In other words, ASIC expects Thompson had completed the loan application
judgment to be exercised without ‘rubber stamping’ the fraudulently. Because the NCCP Act does not provide
preliminary assessment made by the credit mortgage criminal penalties for negligence of this kind on the part
broker. of a lender, it referred to the bank’s actions as
“maladministration” and recommended that the
borrower’s liability should be reduced to 25% of the
Where Lenders May Fail to Comply
outstanding principal.17
Lenders can quite clearly fail to carry out a final
assessment properly, and there have been plenty of
examples of that. In fact, in some cases failure to
comply has been so endemic that suggestions have
been made that banks were actively encouraging non-
16 Either the Code of Banking Practice (CBP) or the Mutual Banking
Code of Practice (MBCP). The latter applies to credit unions and
building societies.
17 Michael West, ‘Low-doc house of cards testing articles of faith’,
15 Source: ASIC SMH, 14 April 2012.

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The NCCP Act also requires a number of documents to
be provided to the borrowers at different stages of the A written preliminary / final assessment that a credit
credit process. The aim is that these documents will contract is unsuitable must be provided by the
help the consumer make informed decisions to prevent mortgage broker free of charge when requested by the
them from entering into an unsuitable credit contract. consumer.19 In practice, this means that the broker must
keep a record of its final assessment in a form that
Most of the documentary requirements are placed on allows the assessment to be provided to an applicant
the lender, but there are two that the mortgage broker promptly and in writing.
is responsible for.
ASIC expects that the written assessment will be
CREDIT GUIDE concise and easy for consumers to understand, and
include reference to the relevant factual information
Mortgage brokers must provide a credit guide to the provided by the consumer that was used to assess the
consumer as soon as practicable after it becomes credit contract as “not unsuitable”.20 This means that
apparent that they are likely to provide credit the written assessment should include a record of the
assistance to the consumer.18 As a practical matter, the financial information obtained, and the requirements
clearest way to meet this requirement is to hand out and objectives communicated by the consumer.
the credit guide at the beginning of an interview
intended to gain information for a loan application. The importance of providing the factual basis on which
the broker made the assessment is that if it is
The credit guide must be in writing and include: inaccurate the consumer can then raise it with the
 the licensee’s name, contact details and Australian
credit licence number;
 details on any fees and charges payable by the AUSTRALIAN CONSUMER LAW
 details of any commissions likely to be received
As well as the responsible lending provisions of the
from the lender;
NCCP Act, mortgage brokers have to consider two key
 the names of the licensee’s six main lenders; provisions of the Australian Consumer Law (ACL). The
ACL is found in Schedule 2 of the Competition and
 details regarding complaint handling, including
Consumer Act 2010.21 The two provisions relate to:
contact details of internal and external dispute
resolution processes; and  false and misleading conduct; and
 information about the licensee’s obligation to  unconscionable conduct.
provide a written copy of an unsuitability
assessment upon request. Something to bear in mind about these provisions is
that they are not limited by restrictions that apply to
Presenting a credit guide may seem a formal the application of the NCCP Act. In particular, in
requirement, but it represents an opportunity to contrast to the NCCP Act, they apply to:
present the business to the client and describe what it
 business loans; and
can do in a positive manner. It also represents an
opportunity to describe other features of the business,  investment loan for shares.
such as the range of services provided and the
complaints handling procedures that the firm is
required to have available.

19 NCCP ACT s.120

20 ASIC Regulatory Guide 209.136
18 NCCP Act, s.113 21 Formerly known as the Trade Practices Act.

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FALSE AND MISLEADING CONDUCT John Riotto, who was formerly the NSW President of
the Finance Brokers Association of Australia.22
Misleading and deceptive conduct and false and
misleading representations by corporations in trade or The court found that in four of the five cases, Australian
commerce are prohibited under the Australian Lending Centre or Sydney Lending Centre (the brokers)
Consumer Law (ACL). A court may impose monetary engaged in unconscionable conduct by having its clients
penalties, grant injunctions to prevent the prohibited sign broking contracts for business loans when they
conduct continuing or being repeated or to require that knew the clients wanted personal loans. The court
some action be taken such as cancellation of contracts found that the practical effect of this conduct was to
and an award of damages. remove important consumer protections provided by
the National Credit Code.
The offence also overlaps with fraud under criminal law,
so fines and jail sentences may also be imposed. The court also found that on two occasions the brokers
also contravened Australian Consumer Law in
UNCONSCIONABLE CONDUCT misleading or deceptive conduct by representing to
lenders that the loans were for business purposes, and
Unconscionable conduct is also prohibited under the thereby avoiding the responsible lending requirements
Australian Consumer Law. This occurs where a stronger of the NCCP Act. The conduct took place between 2005
party attempts to take advantage over a weaker party and 2008.
in a manner that clearly goes against the conscience
because it goes against the norms of society. The court also found the loan brokered for one of the
Unconscionable conduct is more than simply unfair or clients was unconscionable because it was secured over
harsh – it must have an element of bad conscience. his house and the broker knew that the client could not
Where there has been unconscionable conduct, the afford the repayments.
offending may be required to pay compensation for any
financial losses as well as ASIC’s costs. However, the In relation to the fifth client, the court found that the
contract may only be put aside if the offending party loan was for a business purpose. However, the court
was the lender. found that the broker engaged in unconscionable
conduct because the client, a pensioner, suffered from
Examples of unconscionable conduct provided by the a clearly identifiable disability which the brokers
Office of Fair Trading include businesses taking exploited to have him sign a broking contract and loan
advantage of: with an interest rate of 5% a month secured over his
only asset. The court also found that the company that
 consumers who don’t speak English or have English made the loan, AMR Investments Pty Ltd (AMR) – a
as a second language; company also owned and controlled by Mr Riotto – also
 consumers with learning, emotional or behavioural engaged in unconscionable conduct and that Mr Riotto
disabilities; was knowingly involved in the broker and AMR”s
 low-income earners (such as by making false
statements about the full cost of a loan). The court granted an injunction restraining future
similar conduct and awarded compensation to one of
Other examples of unconscionable conduct include: the borrowers who had suffered significant loss. The
defendants were required to pay ASIC’s costs.
 not giving the applicant enough time to, read an
agreement, ask questions or seek advice; and ASIC Commissioner, Peter Kell commented:

 not disclosing or explaining the key terms of a “The outcome sends a clear message that ASIC will act
contract against finance brokers and lenders who unconscionably
place borrowers in inappropriate and unserviceable
Example – Unconscionable conduct
ASIC brought proceedings in relation to five clients of The court granted an injunction restraining future
Australian Lending Centre Pty Ltd and Sydney Lending similar conduct and awarded compensation to one of
Centre Pty Ltd, owned and controlled by Mr Christopher the borrowers who had suffered significant loss. The
defendants were also required to pay ASIC’s costs.

22 ASIC Media Release, 8 December 2012.

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Table 3: The National Privacy Principles
Other legislation also affects lending practices. 1 Collection Collection is limited to what is necessary, and
it must be fair, lawful and non-intrusive. The
organisation must collect personal
PRIVACY LEGISLATION information directly from the individual if it is
reasonable and practicable to do so.
The Privacy Act 1988 introduced the practice of more 2 Use and The information can only be used for the
closely honouring the privacy of clients. Privacy disclosure purpose for which it was collected, unless
protection was later significantly extended by the the person has consented to secondary use
Privacy Amendments (Private Sector) Act 2000. The such as direct marketing or the disclosure is
in the public interest.
basic requirement is that client information should not 3 Data quality An organisation must take reasonable steps
be used for any purposes other than the purpose for to make sure that the personal information it
which the information was originally collected, without collects, uses or discloses is accurate,
the client’s express approval. complete and up-to date.
4 Data security An organisation must take reasonable steps
to protect the personal information it holds
The privacy legislation also covers storing and accessing from misuse and loss and from unauthorised
client information. Clients’ records must be maintained access, modification or disclosure.
in good order on a day-to-day basis. They must also be 5 Openness An organisation must have a policy
securely filed in a locked secure area in fireproof document outlining its information handling
practices and make this available to anyone
structures who requests it.
6 Access and Generally speaking, an organisation must
Only the mortgage broker or lender, associated support correction give an individual access to personal
staff, and compliance personnel (the latter for review information it holds about that individual on
and audit purposes) are allowed internal access to 7 Identifiers Generally speaking an organisation must not
client files. External access is available only to adopt, use or disclose an identifier that has
regulatory bodies (primarily ASIC), and to the client been assigned by a Commonwealth
upon request. government “agency”. For example, a tax file
number or Medicare number.
8 Anonymity Individuals must be given the option of
Movement of records must be monitored and recorded. interacting with the collecting organisation
anonymously whenever it is lawful and
Removal of records can only occur for audit purposes or practical to do so (for example, a general
by court order.
9 Transborder The transfer of personal information to a
data flows foreign country is restricted to those
Another important requirement of the privacy countries with substantially similar privacy
legislation is that each organisation must set out its guidelines, where consent has been obtained
policies on its management of personal information in a or the transfer is necessary to complete an
agreement with a person.
document that must be made available to anyone who 10 Sensitive An organisation must not collect sensitive
asks for it. Typically, a privacy statement addresses information information (for example, details of a
matters such as what an organisation intends to do with person’s race, religion, sexual preferences or
personal information it collects, how it is to be stored health) unless the individual’s consent has
been givenand it is required by law or, in
and who might have access to it. special circumstances, related to public
The access requirement might be satisfied by publishing
the privacy statement on the business website,
although a safer approach is to provide a copy to all ANTI-DISCRIMINATION LEGISLATION
clients at the beginning of the business relationship.
Over the past 30 years the Commonwealth Government
and the state and territory governments have
Schedule 3 of the Privacy Act 1988 contains ten
introduced anti-discrimination law to help protect
National Privacy Principles (NPPs) that regulate how
people from discrimination and harassment.
individuals’ personal information may be handled.
These are listed in Table 3.
These laws include a range of grounds on which
individuals may lodge a complaint including
discrimination because of race, sex, disability and age.

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Complaints about discrimination can be made in A spokesperson from ASIC rebutted the suggestion that
relation to a range of areas including employment, the responsible lending provisions discriminate against
education, the provision of goods, services and older people. He claimed that although they might not
facilities, accommodation, sport and the administration have the income to continue to pay the loan in the
of either Commonwealth or State and Territory laws future, e.g. due to retirement, there may be other
and services. acceptable ways to repay it, e.g. through using
superannuation payout monies or by selling the home
The privacy legislation also places limits to the use of and downsizing. He pointed out, however, that if
information that may lead to discrimination. For downsizing is required to repay the home loan, it is
example, The Privacy Act 1988 prohibits a credit important that the borrower know and understand that
reporting agency from including information any of the at the time they are taking the loan out.24
following in a credit report:
ASIC has set out its approach to such lending in
(a) political, social or religious beliefs or affiliations; or
Regulatory Guide 209, where it has also included two
(b) criminal record; or case studies to indicate that loans can be made in the
circumstances described.
(c) medical history or physical handicaps; or
(d) race, ethnic origins or national origins; or Example - Repayment from superannuation25
(e) sexual preferences or practices; or
A male consumer aged 65 applies for a fixed-term loan
(f) lifestyle, character or reputation. 23 to purchase a boat.

Lending to Older People Although currently working full time, he intends to

retire within a year. Without further inquiry, it may
It has been suggested that the responsible lending appear prudent to refuse the application on the basis
provisions discriminate against older people because that his financial circumstances will be very different
they are not likely to have sufficient income to repay a once he ceases work.
loan. This issue has been considered carefully by ASIC,
which has suggested that in the case of older people The preliminary inquiries undertaken by the finance
there may be other acceptable ways of repaying a loan. broker he has approached reveal, however, that his
superannuation will be more than sufficient to meet his
Example – Lending to older people ongoing financial needs as well as repayments under
the loan.
For example, consider the following account from a
mortgage broker:
Example - Future plans to sell the principal
“I had a couple come in where the bank had done the residence and downsize26
wrong thing. They were both retired and they wanted to
buy a block of land and build a house. So they put all of A female consumer applying for a 25-year principal and
their assets into that and they bought this block of land. interest home loan to purchase a new home is currently
But the people who had financed the block of land employed and can demonstrate capacity to meet
didn’t tell them that they can’t finance the house repayments under the proposed loan however, she is
because of their age. So they’ve got a caravan parked 55 years old and intends to retire at age 65, with a post-
on that land now. It’s just not fair.” retirement income insufficient to meet repayment
obligations without substantial hardship. As it is likely
the consumer could only meet her financial obligations
post retirement by selling the home, it appears at first
view that the presumption in s118(3) applies and, as a
result, the loan would be unsuitable.

Amy Rosenfeld, Mackenzie McCarty, ‘Age discrimination in
broking: Has ASIC gotten it wrong with over-50's?’, Australian
Broker Online, 28 May 2013.

23 Privacy Act 1988, s.18(E)2. 26 From ASIC Regulatory Guide 209.105

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MB4 Compliance Requirements 010615
The lender’s inquiries about her requirements and Table 4: Identifying an Individual – Verifying
objectives, however, reveal that she has planned for her Documents
future change in financial circumstances and, at the
Primary documents Secondary documents
point that she can no longer comfortably afford
repayments, intends to sell the home and downsize.  a current Australian or  a bank statement issued
She does not wish to purchase a smaller home until this foreign passport by an Australian bank
time, however, and also considers the home she is  a current Australian within the last 12 months
currently purchasing has greater potential to appreciate driver’s licence or  an Australian Taxation
in value in the years before she has to sell it. learner’s or 18+ proof of Office (ATO) notice issued
age card within the last 12 months.
Given her expressed intent, if her likely equity position  foreign national identity  a government benefits
will be such that she can readily pay the outstanding card notice issued within the
balance of the loan at the time of the planned sale, ASIC  an Australian birth last 12 months (e.g. a
believes that it would be reasonable to assess the loan certificate or birth notice from Centrelink)
as “not unsuitable”. extract  an utilities notice issued
 an Australian citizenship within the last 3 months.

ANTI-MONEY LAUNDERING AND certificate  a Medicare card

 a Commonwealth Seniors
2006 (AML/CTF ACT) card
 a Health Care card
In principal, the obligations of the AML/CTF Act fall on (Centrelink/Department
lenders and not brokers. One of the requirements of of Veterans’ Affairs)
the Act, however, is identity verification, and brokers
 an Australian Marriage
often undertake this on behalf of lenders. To facilitate
broker compliance with the AML/CTF Act, lenders will
 supply compliance procedures to brokers and
mortgage managers; and Since mortgage brokers are licensed under the NCCP
 appoint brokers as agents or sub-agents to carry Act, the Corporations Act has little bearing on the
out the identification on the lender’s behalf. business or mortgage broking. However, all businesses
that are public companies are subject to the general
Both the Mortgage and Finance Association of Australia provisions of the Corporations Act, including the
(MFAA) and the Finance Brokers Association of financial reporting requirements.
Australia (FBAA) have prepared AML/CTF Act training
and compliance packages. As such they must prepare annual financial reports that
Loan applications should not be submitted for clients  prepared in accordance with Chapter 2M of the
whose identity the broker has not personally verified Corporations Act;
except in specific situations approved by the lender,
such as a client living in a very remote area. Standard  audited;
identification verification procedures for individuals  lodged with ASIC within 4 months of financial year
include ascertaining the client’s full name, residential end;
address and date of birth.
 sent to shareholders by the earlier of 4 months
Documentary identification will normally require at after year end or 21 days before the next AGM.
least two original documents, at least two from a list of
government-issued primary documents and at least one Preparation of the annual financial reports requires
from a list of a list of secondary documents. The internal administration systems such as accounting
required documents are summarised in Table 4. systems and databases that are designed to collect and
process the required information.

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MB4 Compliance Requirements 010615
managers were encouraged to take the same
KEEPING UP TO DATE approach.28
Keeping up to date with compliance requirements may At Boeing it was also found that employees must be
seem burdensome, but this really should not be the made aware of the consequences of ethical misconduct
case. Professional associations such as The Mortgage and be prepared to report on the ethical misconduct of
and Finance Association of Australia (MFAA) and The others:
Finance Brokers Association of Australia (FBAA) inform
their members of changes to requirements before they “People should be aware of their obligation to maintain
happen. The professional associations’ code of practice and promote ethical behaviour . . . and they should be
can also be used as a sound guidance to compliance aware of the adverse consequences that follow from a
requirements. Also, larger mortgage broking failure to do so. People mustn't be allowed to think that
organisations usually have compliance officers who they can hide in the corporate bureaucracy or wink at
assist practitioners to meet compliance standards. the misconduct of fellow workers, or even their leaders
– especially their leaders.” 29
It is also a good idea to have an up-to-date procedures
manual. Larger organisations should have them as a Notice that this requires:
matter of course, while smaller organisations can  not accepting elements of the corporate culture
purchase sound procedures manuals that are kept up to that re not consistent with ethical conduct; and
date through the internet.
 Reporting instances of ethical conduct by other
When new compliance requirements are being employees.
reviewed, any words or phrases that are not
understood should be identified, with the necessary AN AUDIT OF COMPLIANCE
research to understand their meaning being
It is also important for a firm to audit and monitor the
undertaken. This may involve approaching supervisors
staff in order to know they are adhering to the
and colleagues. The meaning and significance of all
measures and controls put into place to ensure
documents relating to compliance should be properly
compliance and mitigate associated risks.
Carrying out audits and monitoring on compliance areas
ESTABLISHING A COMPLIANCE and procedures is both an essential business function
and an ASIC regulatory requirement. The only way to
CULTURE ensure that processes work is to audit them and assess
the results, carrying out gap analysis and reviews on a
ASIC requires a business’s compliance measures to be
frequent and rolling basis.
documented although it acknowledges that the level of
documentation will vary from detailed policy and
It is also important for a business to have regular,
procedures manuals in larger organisations to checklists
perhaps annual, compliance reviews. Essential
in smaller organisations. 27
components of a compliance review include a review of
Once a compliance system has been established, it is the licensee’s policies and procedures and a check of
implemented and maintained. Training has an client files to make sure that the policies and
important function in this process, but it is not enough procedures are being followed.
on its own. Compliance and ethical behaviour must
become a dominant value of the business.
In the United States, after a series of scandals involving
defence contracts, the Boeing Company found that it
had to “open up” the company’s culture to compliance
and ethical issues. For them this began with “talking
about ethics and compliance at every opportunity”.
Whenever he moved around the company the CEO held
discussion groups at which compliance and ethical
issues were central points of discussion, and line
McNerney, J., “Turning Ethics and Compliance into a Competitive
Advantage”, The 2006 Ethics and Compliance Conference, La
Jolla, California, 27 April 2006.
27 RG 104.44 & RG 104.45. 29 McNerney (2006).

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MB4 Compliance Requirements 010615