Last week, ASIC published its updated guidance on responsible lending following a consultation period to explore if the standing version was effective, as well as what changes and additions could help credit licensees better understand their obligations.
While the revised version has sought to “clearly articulate” what the regulator considers in its compliance assessments, and provide “more illustrative examples” of how individual circumstances should play out, ASIC has clarified and reiterated that a principle-based approach remains the best way to maintain a well-operating credit system moving forward.
According to Andrew Tierney, credit and risk consultant, “ASIC has re-stated this for a purpose”.
“I believe this is a warning shot that everything should be ‘principles-based’ and on an ‘if not, why not’ basis,” he said.
“Should the regulators believe more guidance is necessary, then it could become more and more prescriptive, which then stifles the industry and innovation.
“Risk managers should be thinking through all the requirements based on the legislation and be prepared to risk assess where and when documents, verification and automation can be used; and most importantly, be able to defend their position to the regulators.”
However, Tierney has clarified the updated guidance will need to be managed across both the lender and broker levels, ensuring the industry is “aligned” and the two sides understand their roles.
Both broker associations, the MFAA and FBAA, have communicated that the most important aspect to monitor moving forward is how lenders interpret the updates.
Tierney believes ASIC's amended guidance could bring a material change to the lending landscape “if understood and managed correctly”.
“If the intent is followed and ‘if not, why not’ is followed, then this should reduce the need for expensive litigation at an institution level, but also at a consumer level," he said.
The ‘if not, why not’ concept was one of the key principles put forward during the consultation process which shaped the updated guidance.
“This would put the burden of proof on to the industry to defend their position. It would include rationale, analysis, outcome, logic; this would then provide material for a defensible position,” Tierney explained.
While ASIC ultimately declined to include the 'if not, why not' approach in the updated guidance this time around, Tierney believes it could be the next step if there remains ongoing issues with compliance.
