Conflicts of Interest Policy Development
One of the General Conduct Obligations for an Australian Credit Licence is for the Licensee to have a documented Conflict of Interest Policy to ensure their clients are not disadvantaged as a result of conflicts of interest (which may arise from engaging in credit activities).
QED Risk Services, as part of the process of assisting brokers and lenders to obtain their Credit Licence, will prepare this policy which will outline the business's processes to ensure it manages any conflicts of interest, which will comply with section 47(1)(b) of the National Consumer Credit Protection (NCCP) Act 2009.
The Act requires all Australian Credit Licensees to have adequate measures in place to ensure clients are not disadvantaged as a result of conflicts of interest that may arise in the course of engaging in credit activities.
What is a conflict of interest?
Conflicts of interest are situations where some or all of the interests of a client (or potential client) are different to some or all of the interests of a Credit Licensee (and/or their representatives). This includes actual as well as potential conflicts.
1. Finance Broker A has an interest in encouraging Client B to take a loan with XYZ Bank, even though their interest rates are much higher than ABC Bank, because XYZ pay better commissions. This is inconsistent with Client B's interest in minimising his monthly repayments.
2. Finance Broker C has an interest in encouraging Client D to take a $20,000 overdraft when she only requires $10,000, as this will result in higher volume commissions for C. This is inconsistent with D's interest in minimising the amount of debt exposure she has.
This is not to say that all conflicts of interest are necessarily bad and that they must be eliminated. Many conflicts of interest simply arise as a natural part of doing business. What is important is that our business deals with conflicts appropriately and that its customers are never disadvantaged as a result of a conflict of interest.
Credit Licensees need to demonstrate their compliance by testing the business against this policy regularly.
QED Risk Services conducts in-house compliance monitoring for brokers. We also have a self-audit online compliance monitoring system designed for brokers to meet their NCCP compliance obligations called QED CompliFast.