ASIC Review: Mortgage Broker Compliance and Best Interests Duty Findings

Regulatory Scrutiny of Broker Recommendations

ASIC’s landmark review analyzed 7,000 documents from eight major aggregators, covering the period between 1 April 2023 and 31 March 2025. The sample included 800 loan recommendations where the broker did not select the cheapest option available on their shortlist. While nearly 75% of recommendations with a cost difference under $1,000 raised no regulatory concerns, nearly two-thirds of files involving cost differences exceeding $20,000 triggered alarms due to generic justifications or a lack of detailed comparisons.

Evaluation Criteria for Best Interests Duty

To ensure consistent calibration, ASIC applied three formal evaluation tiers to broker file rationales. Recommendations were categorized as having “no concerns,” “some concerns,” or “most concerns.” The highest level of alarm—”most concerns”—rose from 7.5% in cases with minor cost gaps to 43.9% for files where the cost difference exceeded $20,000. The regulator emphasized that a loan is unlikely to be in the consumer’s best interest if a cheaper, suitable alternative exists that the broker failed to justify.

Technical Hurdles and Data Gaps Hinder Loan Cost Measurements

The review identified significant technical hurdles in how licensees and software platforms measure loan costs. Most credit licensees calculated costs over a 30-year term, while others utilized a five-year window to better reflect consumer behavior. ASIC identified critical data quality gaps, noting that comparison software often failed to automatically capture net loan costs, such as agreed discounts or promotional cashbacks, forcing brokers to input these values manually. Two of the eight aggregator groups surveyed could not readily extract total-cost figures for compared products, leaving them unable to monitor cost variations without manual audits.

Standardizing Cost Metrics

ASIC standardized its review data by converting total cost values into a five-year reference period. This approach was designed to mitigate the impact of introductory fixed rates that revert to higher interest rates after a set term. Despite this standardization, the regulator acknowledged that even a five-year window might overstate costs for borrowers who actively refinance to avoid reversion rates. The report concluded that brokers must provide evidence-based justifications when recommending higher-cost loans, particularly those involving offset facilities, redraw features, or policies accommodating non-standard income.

Improving Compliance Documentation

The regulator’s findings suggest that relying on periodic audits is insufficient for identifying high-risk, high-cost recommendations. ASIC recommended that aggregators improve system capabilities to capture accurate lender data, including processing timeframes and promotional offers. Licensees are now expected to move beyond checking boxes, performing closer examinations of the substance of their representatives’ recommendations. When a broker suggests a loan that is not the cheapest option, the documentation must explicitly demonstrate how the consumer derives greater value from the features of that specific product.

For firms operating within the credit sector, managing these regulatory requirements often necessitates reliable compliance software and internal audit systems. Professional services focusing on regulatory technology and compliance advisory are increasingly essential for firms seeking to bridge the gap between automated software outputs and the stringent documentation standards required by the regulator. As the industry moves toward more rigorous evidentiary standards, the ability to clearly articulate the rationale behind product selection remains a primary indicator of institutional health.

The findings follow a long-standing debate within the Australian mortgage market regarding the definition of the “cheapest loan” and the extent of a broker’s obligation to prioritize cost over other product features.