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The corporate regulator’s latest update on responsible lending, RG209, is aimed at providing greater clarity on a number of key issues, including expense verification. But the challenge remains as to how lenders apply the guidance in practice.
ASIC has done what it said it would do and achieved a principled-based approach. With almost 40 detailed examples set out in the document, it stops short of being overly prescriptive.
The regulator consulted widely and has given broad guidance on topics which have proved difficult in practice, including issues around requirements and objectives, verifications and buffers.
While most lenders will be happy with further guidance around this key compliance obligation, putting the guidance in practice will be the next challenge, given aspects of lenders’ policy and process are likely to be impacted.
It is worth noting that the new guidance was almost completely re-written given the previous version of it was published in 2014. The new version makes clear that the views set out, as previously signalled by ASIC Commissioner Sean Hughes, are ASIC’s guidance only, and do not mandate particular behaviour.
Ultimately, it is up to lenders to decide how they will meet their responsible lending obligations.
The revised guide is a mature regulatory response and a step up from its predecessor in terms of detail. It provides case study examples and engagement with real industry issues.
The depth of the engagement and consultation the regulator had with its constituents shows, with obligations explained in detail, including the ‘purpose’ underlying them.
The key is the emphasis on how purpose fits in. The renewed emphasis on this being principles-based legislation, highlights that the onus is on the licensee to determine whether its approach to a particular obligation meets what it is ‘intended to achieve and the consumer harm it is intended to address’.
There are also a lot more examples that are more ’practically focused’ than previous versions. These include examples in relation to lenders dealing with ‘lumpy income’ and income from the gig economy. Many submissions in the consultation process highlighted this as a key issue. We note that their inclusion reflects the ’passage of time’ given the term ‘gig economy’ was not so widely used in 2014 when the last version of the Regulatory Guide was published.
However, given the greater level of granularity around expectations, one of the significant challenges lenders will face is implementing new policies and compliance processes to ensure practical compliance without disrupting operational components.
Tim is a Partner with Deloitte’s Audit & Assurance practice.Tim began his professional career with Deloitte as a graduate with a focus on our banking audit clients. He has diverse experience providing governance, regulatory and conduct advisory services within banking and financial advice sectors. Tim is an experienced advisor on matters related to conduct, including leading financial advice and retail banking remediation programs, as well as conduct risk framework and remediation exercises related to retail banking products.
Rita is an experienced strategic advisor and qualified statistician specialising in risk analytics and financial risk. She has significant experience working predominantly in risk in the areas of modelling, analysis, process optimisation, financial risk and financial crime across various industries including financial services, health services and the energy sector. Rita is the Lead Partner of Financial Risk services in Australia and is passionate about building the financial risk capabilities and strategy of her clients as well as enhancing their use of data to drive risk insight and action. Leading numerous large risk and regulatory engagements, Rita understands how to ensure compliance is met in the most efficient and effective way whilst balancing business and customer needs.