FNS50815 Diploma of Finance and Mortgage Broking Management Module 1 Written Assessment

This document is the Module 1 Written Assessment for the FNS50815 Diploma of Finance and Mortgage Broking Management course. It contains instructions for submission, declaration of authenticity, important assessment information, and activities related to explaining finance and mortgage broking services to clients and explaining finance terms and concepts.

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FNS50815 Diploma ofFinance and Mortgage Broking
Management
Module 1 Written Assessment
Submission instructions:
Key steps that must be followed:
1. Please complete the Declaration of Authenticity at the bottom of this page.
2. Once you have completed all parts of the assessment and saved them (e.g. to your desktop
computer), login to the Monarch Learning Management System (LMS) to submit your assessment.
3. In the LMS, click on the file ‘Submit Dip FMB Module 1 Assignment’ in the Module 1 section of
your course and upload your assessment files by following the prompts.
4. Please be sure to click ‘continue’ after clicking ‘submit’.This ensures your assessor receives
notification – very important!
Declaration of Understanding and Authenticity *
I have read and understood the assessment instructions provided to me in the Learning Management System.I am aware of whereto
find the assessor’s feedback for the assessment. I am aware of the appeals process, should the need arise. I alsounderstand Imust be
assessed as ‘satisfactory’ in all parts of the assessment to gain an overall satisfactory result for this unit of competency. Iunderstand
a person found responsible for academicmisconduct will be subject to disciplinary action (refer to Student Information Guide).
I certify that the attached material is my original work. No other person’s work hasbeen used without due acknowledgement. I
understandthat the work submitted may be reproduced and/or communicated for the purposeof detecting plagiarism.
Student Name*: Date:
* I understand that by typing my name or inserting a digital signature into this box that I agree and am bound by the above student
declaration.
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Important assessment information
Marking and feedback
This assignment contains fourteen (14) assessment activities each containing specific instructions. You must answer
every question/complete each task within each activity. This particular assessment forms part of your overall
assessment for the following units of competency:
 FNSFMB402
 FNSINC402
 FNSFMK505
Grading for this assessment will be deemed ‘satisfactory’ or ‘not satisfactory’ in line with competency-based principles.
What does ‘satisfactory’ mean?
These answers contain sufficient evidence in response to the question/s with limited serious errors in fact or application.
If incorrect information is contained in an answer, it must be fundamentally outweighed by the display of competence.
This will be assessed against a marking guide provided to assessors for their determination.
What does ‘not satisfactory’ mean?
This occurs when an assessment does not contain sufficient evidence of applied knowledge and skill. These answers may
not address the question specifically, or are incorrectly applied. Answers that omit to provide a response to any
significant issue (where multiple issues must be addressed in a question) may also be deemed not satisfactory. Answers
that have faulty reasoning, a poor standard of expression or include plagiarism may also be deemed not yet satisfactory.
Please note, additional information regarding Monarch’s plagiarism policy is contained in the Student Information Guide
which can be found here: http://www.monarch.edu.au/student-info/
What happens if you are deemed not satisfactory?
Re-assessment
As soon as practicable after you have been informed of the requirement to be re-assessed, you will be given one more
opportunity to re-submit the assessment. Before you make your second attempt, you will need to consult with your
trainer/ assessor and revise the training.
You are re-assessed in only the areas assessed as not satisfactory. It is at the assessor/s discretion to re-assess the entire
assessment should it be demonstrated an overall understanding of this unit has not been achieved.
You will know your assessment is deemed not satisfactory if your grade book in the Monarch LMS says ‘NS’ after you
have received an email from your assessor advising your assessment has been graded.
Important: It is your responsibility to ensure your assessment resubmission addresses all areas deemed unsatisfactory
by your assessor. Please note, if you are still unsuccessful in reaching a satisfactory standard after resubmitting your
assessment, you will be required to repeat those units.
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In the event that you have concerns about the assessment decision then you can refer to our complaints and appeals
process, also contained within the Student Information Guide.
When does ‘competence’ come in to it?
If you achieve a grade of satisfactory for ALL assessments for a unit of competency, you will be deemed competent in
that unit.
How to answer written questions
After each question, there is a blank text box for you to start typing your answer in, as indicated below.
1. Here is a sample task instruction, asking you to enter text in the box below.
Type your answer here…
2. What is the answer to this question?
You can type as much as you like. The blank line is not an indication of how much you should write. The box will expand
with the amount of text you enter. If you are not sure how much to write, look at the question hints, criteria, and word
count guide. Note – the word count is a GUIDE ONLY. It’s not a maximum or a minimum, just a clue based on the model
answer written by the course developers.
For some tasks, you’ll be asked to copy and paste content in to the answer box. If in doubt, ask your trainer.
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Activity 1
Explaining finance and mortgage broking services to clients
1. How would you explain the finance and mortgage broking process to clients, in a clear and unambiguous way?
HINT: In your answer, include every step from the client first contacting you, to the follow-up service you
provide after the loan has been established.
The finance and mortgage broking processes are addressed to the client in a proper and unambiguous manner
by explaining the background, role and the credentials to the client in order to create a rapport.
2. How would you explain your background, credentials and role as a broker?
All the explanations regarding the credentials and the role as a broker to the client would be made with the help
of explaining the values and the services and the capacity of the company to the clients and make them
understand about the charges and the fees and the complaint resolution procedures.
3. How would your explanation above help build rapport with the client?
With the help of the explanations that has answered above with regards to all the services would be done by the
company, the client will be having a clear idea about all the operations and thereby a good rapport will be
created.
4. Explain the services a broking business can provide. Make sure you cover the extent of what you can do and the
limits of what you are authorised to do.
There are various sorts of services that are offered by a broking business organization. One of the primary
services of the company has been offering various kinds of investment products with the help of which the client
can make proper investments according to their own goals and objectives. These companies even provide advice
and suggestions with respect to the changes in the investments that can be made.
5. Explain the values of a broking business and provide some examples of professional conduct.
The values of a broking business include assisting the client with the best investment option in accordance to the
need of the client with the help of which the client get the best returns.
For example the income of the client is taken into consideration and accordingly the risk taking capacity of the
client is even known. The short term and long term goal of the client is even understood after which the proper
portfolio for the client is suggested.
6. Write at least two (2) questions you could ask a client to confirm that they understand the fees and charges
involved in the service you provide.
The two questions that can be asked to the client in order to confirm that they understand the fees and charges
associated with the services are as follows:
Are you satisfied with the fees and the charges that would be levied?
Do you think the fees and the charges appropriate with respect to the services that would be offered?
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Activity 2
Explaining finance terms and concepts
1. Explain the concept of credit.
HINT: Most dictionary definitions are under 30 words.
Credit is known to be a contractual agreement within which a borrower gains something of value now and looks
to repay the lender at later point of time generally with interest
2. What is a credit reporting service?
Credit bureaus, even known as credit reporting agencies, are organizations that record and maintain consumer
credit data thereafter resell it to other companies in the form of a credit report.
3. Describe three (3) elements that make up the economic environment.
The three elements that make up the economic environment are:
Political environment, Socio-cultural environment and technological environment
4. What is the business cycle?
Business cycles are considered as having four distinct sections and they are namely: peak, trough, contraction,
and expansion. These are the phases and the fluctuations that are faced by every organization in the economy.
5. What are financial markets?
The financial market is an extensive term explaining any marketplace in which trading of securities inclusive of
equities, bonds, currencies and derivatives take place.
6. Name three (3) parties that participate in the financial industry. Describe each party’s role in the industry.
The three parties are investor, speculator and retail. Investors look to make investments in the market, the
speculators make speculations in the market with respect to the trend in the market. Retail on the other hand
undertakes the trade in the market.
7. What are interest rates and why are they charged?
Interest rates are charged in order to pay off the debt. The interest acts as the buffer for the long time that is
taken to pay off the debt.
8. How are interest rates changed and set?
The interest rates are changed and set with respect to the probability of the debt being repaid.
9. What are exchange rates?
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Exchange rate refers to the amount that is used for the currency converter with respect to the value of money of
two different countries.
10. Give an example of how exchange rates might affect a business.
A company has their business in Australia and even in USA. The profit that is earned in Australia may not be
sufficient in USA because as per the exchange rate the value of money will differ.
11. What is inflation?
Inflation is a sustained rise in the general extent of prices for goods and services.
12. What is a deposit bond?
Deposit bonds are a sort of Surety bond ― a financial tool generally used in Australia as a substitute to a cash
deposit.
13. What is the procedure for lodging a deposit bond?
An entity enters into an agreement to buy residential property; it is a general practice for the purchaser to lodge
a cash deposit and at this point of time deposit bonds are lodged.
14. Define the lender in a transaction –what rights and obligations do they have?
The company or the entity that lends money is a lender. They have the right to make a claim for the money that
has been provided.
15. Define the borrower in a transaction – what rights and obligations do they have?
Borrower is an entity that takes the money from the lender. They are obligated to pay back the money to the
lender.
16. Define the lessor in a lease agreement. what rights and obligations do they have?
It is known to be a company or an entity that leases their property to another entity. They are obligated to
receive money on behalf of the lease given.
17. Define the lessee in a lease agreement. what rights and obligations do they have?
The entity that takes the property on lease from another is known to be lessee. They are obligated to pay the
money and leave the property after the agreement is over.
18. Define the mortgagee in a transaction. what rights and obligations do they have?
The lender in a mortgage is known to be the mortgagee. They are obligated to receive money.
19. Define the mortgagor in a transaction. what rights and obligations do they have?
The entity that takes the mortgage is known to be the mortgagor. They are obligated to pay the mortgage on
time.
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20. How would you explain land titles to a client?
Land title is known to be a title which is a bundle of rights in a property within which a party may have either a
legal interest or equitable interest
21. How would you explain title searches to a client?
Title searches refer to the searches that are made in order to have an idea that the seller posses the legal rights
to sell the property.
22. What is strata title?
Strata title is a kind of ownership created for multi-level apartment blocks and horizontal subdivisions with
shared areas.
23. How does strata title differ from company title?
Company title refers to the ownership of a property which is attained by owning of the shares of the company
and on the other hand strata title is the ownership created for multi-level apartment blocks and horizontal
subdivisions with shared areas.
24. What does it mean when a loan proposal has multiple securities? Provide an example of a loan proposal with
multiple securities.
The process of multiple securities refers to the various safeguards and collaterals that are maintained while the
proposal of the loan so that in case of non-payment of loan the amount can be paid back.
25. What is a second mortgage?
Second mortgage refers to the mortgage that is taken out on a property that has already been mortgaged.
26. Give an example of a situation in which a client might seek a second mortgage.
In case the client is looking to take a personal loan then they might take keep their house as a collateral in which
the house has already been purchased with the help of a loan.
27. Describe how lenders may assess security for a second mortgage differently to a first mortgage.
The lenders assess the security for the second mortgage by assessing the condition of the first mortgage and the
extent of repayment that has been done.
28. Define a subdivision of title.
Subdivision involves dividing property into multiple lots.
29. What is a partial discharge of a mortgage?
A partial discharge occurs when a person having more than one property that is secured by a loan and the
person would like to release one of the properties as security, without repaying the entire loan.
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30. When might a borrower request a partial discharge of a mortgage with multiple securities?
Such request generally occurs when the borrower has multiple properties as security.
31. What is a Torrens title?
Torrens title is a land registration and land transfer process, that is created by a state and maintains a register of
land holdings, which acts as the conclusive proof of title of the individual recorded on the register as the owner,
and of all other interests recorded on the register.
32. What does ‘indefeasibility of title’ mean?
Indefeasibility title refers to a right or title in property that cannot be made void, cancelled by any previous
event, omission in the title
33. What is the difference between a strata title and a community title?
A Strata Title unit’s boundaries are explained by reference to sections of the building, not by the land. There
must be a section of common property, for which everyone is liable. Community Titles are explained by lot
boundaries and recorded measurements that are unlimited in depth and height, as well as reference to parts of
the building.
34. What issues need to be considered in determining whether two people should acquire a property as joint
tenants or tenants in common?
The issues that need to be considered in determining whether two people should acquire a property a joint
tenant is whether both of them have any prior criminal records.
35. For each ownership model listed above, what are the financial records that need to be kept?
The financial records that need to be kept are the income statement of the owners and the degree of income
they earn.
36. What is the difference between a split loan and an interest-only loan?
Split loan refers to the loan in which one home loan is segregated into multiple accounts, which would have
different rates of interest. Interest only loan refers to the loan in which the borrower has to pay the interest
rate for the mortgage with the help of monthly payments.
37. What is the difference between an offset account and a line of credit?
An offset account is a transaction account attached to a qualified home or investment loan. Line of credit refers
to the amount credit that is credited to the borrowers.
38. What is Regulatory Guide 209 about?
This is known to be a guide for credit licensees, credit applicants and unlicensed carried over instrument lenders
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39. Why would a loan to valuation ratio of 80% or more require lenders mortgage insurance?
This is done in order to safeguard the loan from any kind of bad debt or repayment.
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Activity 3
Complaints and dispute resolution
Background
Read this dispute resolution process, extracted from the website of a major Australian broker group:
We hope that you are delighted with our services. However, if you have any complaints, you can raise these directly with the
representative with whom you are dealing.
If you are not satisfied with the response that you receive, you may contact our Credit Services and Standards team, by
 telephoning 13 77 62
 emailing [e-mail] or
 writing to PO Box 457 North Sydney NSW 2059.
When we receive a complaint, we attempt to resolve it as quickly as possible, subject to a full investigation of all the
circumstances involved.
Credit and Investments Ombudsman
If we are unable to resolve your problem satisfactorily If you are not satisfied with the outcome of your complaint, you may
refer the matter to the Credit and Investments Ombudsman (1800 138 422) an ASIC-approved External Dispute Resolution
service (www.cio.org.au).
External dispute resolution is a service provided at no cost to you, which gives you access to an independent mechanism for
the resolution of specific complaints or disputes.
You can obtain further details about our dispute resolution procedures on request.
1. How would you summarise this complaints procedure for a client with limited understanding of the process (in
under 50 words)? You may use dot points.
The complaint procedure for a client is done by understanding and recording all the issues that have been
identified by the client.
Once the complaints have been recorded, analysis of the same has to be done with the help of which the validity
of the complaint can be understood. Thereafter the steps can be taken in order to resolve the issue.
2. What are the basic compliance requirements for complaints handling and resolution processes for brokers? In
your answer, make sure to note the source of this requirement (i.e. legislation, regulation or code of conduct).
The basic compliance requirements for handling and the resolution process are done with the help of two step
process.
The receipt of dispute filed needs to be acknowledged and proper actions need to be taken with respect to the
level of urgency.
The relevant information with respect to the complaint has to be taken into consideration.
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Immediate actions are taken with the help of which the errors or mistakes can be identified and resolved.
Handle the complaint process in a precise and effective manner.
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Activity 4
Product knowledge and research
1. Choose a major Australian lender to research. Name three (3) of the products that the lender provides.
ANZ Bank
2. Describe the purpose of each of the following products:
Interestonly loan,
Fixedrate loan,
Line of credit, and
Re-draw facility.
HINT: When defining ‘purpose’, describe the circumstances where the product would be considered not
unsuitable, and explain the client need it satisfies.
The purpose of interest only loan has been to assist the client to pay on a monthly payment.
Fixed rate loan: Fixed rate loan assists to the client to pay a fixed rate of interest and in this manner avoids
fluctuations in the interest rate.
Line of Credit: This assists the client to extend their amount of loan from the initial amount.
Re-draw facility: With the help of this facility, it assists the borrower to borrow the money that has been already
been paid earlier.
3. Select one of the products identified in the question above. How would you summarise the benefits and
disadvantages of that product?
HINT: In your answer, think about what makes that product unique, and what the client would need to know
about that product.
The benefits and the disadvantages of interest only loan are as follows:
Benefits:
Payment on the monthly basis is low
Place additional money to the investment in order to increase the net worth
Disadvantages:
Several people spend additional money rather than investing it
4. For each of the products identified above in question 2, think about the ideal client whose needs might best be
served by this product. Name at least five characteristics of each client.
Interest-only loan Fixed rate loan Line of credit Re-draw facility
Client characteristics: Client characteristics: Client characteristics: Client characteristics:
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 People looking
to pay as per
the variation
 Risk taking
people
 People looking
to increase their
loan amount
 People looking
to increase net
worth
 Looking to pay
low monthly
payments
 Low risk taking
people
 Low risk taker
 Conservative
people
 Looking to
maintain a fixed
rate of interest
 No extra income
looking people
 Looking to
increase property
 Risk taking people
 Gain additional
money
 Increase their
level of property
 Delay the interest
payment
 Increase their
mortgage
amount
 Increase their
level of property
 Long term
repayment
opportunity
 People with
flexible planning
 Increase their
level of income
5. For each of the products you listed for Question 1, find a comparable product from a competitor lender. Name
the product, the product provider, and identify a source of information about the product (such as a URL). Then
list at least three ways in which the competitor’s product differs from the product from the lender you
researched in Question 1.
Product
Name
Product Provider Product information Three points of difference
Product 1 Professional
Package
Variable
AMP Bank Offers interest rate
at affordable flexible
rate with attractive
features
 Redraw facility available
 Offset Account
 Free Savings Account
Product 2 Basic
variable
AMP Bank Flexible interest rate
and no additional
costs
 Free Savings Account
 Line of Credit available
 Redraw facility available

Product 3 Classic
Variable
AMP Bank Normal interest only
loan with the basic
features
 Line of Credit available
 Redraw facility available
 No additional expenses
6. As a broker, how will you keep up to date with the range of products and services on the market, including new
products?
An update on the range of products in the market will be done by taking assistance of the lender magazines
where information about all the products is published.
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7. How will you keep an eye out for any changes to the terms and conditions of the products and services you're
working with? Name at least two things you'll do to make sure you're up to date with your knowledge.
The two things that needs to be done in order to ensure that up to date is done with respect to the products are
keeping follow up with the brokers on a daily basis and check the website of the product on which work is being
done.
8. Give an example of a way in which a change in terms and conditions might affect the way you match a product
to client needs.
For instance, the change in terms can reduce the benefits of the product. If the duration of a product is reduced
its interest rate may not be as attractive with relation to the past.
9. Are there any digital tools or online services you might use to help you maintain up to date product knowledge?
Describe at least two.
The digital tools are:
Social media advertisements
enewsletter
10. Name one way in which you can actively seek out new information about products and services - i.e. an option
that doesn't mean waiting for information to be sent to you.
The option includes searching the information in the website of the company
11. Describe how practices may change as a consequence of The Royal Commission into Misconduct in the Banking,
Superannuation and Financial Services Industry which was established on 14 December 2017.
HINT: This can be anything from changes to loan products to standards for customer care.
The development of customer care services can be helpful in the development of better services and grievance
handling process with the help of which such misconducts can be prohibited.
12. How might this trend affect the way you go about your work in the future?
This trend may have a positive impact in the work that can be done in the future.
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Activity 5
Meeting client needs
1. Describe the step-by-step process you would take to match a product to a client's needs.
HINT: the first step should have to do with working out the client's goals and circumstances…
The process that needs to be taken in order to advice the product with respect to the needs of the client is
addressed as follows:
Initially the main aims and the objectives of the client need to be understood with the help of which the issues
can be understood in a proper manner.
The risk taking capacity of the client has to be understood by taking assistance of a proper questionnaire and
asking them about their risk taking ability.
After having an understanding of the needs of the client the income level of the client is understood and
accordingly the product that is suitable for the client is advised.
2. How would you explain each step of the process above to a client as concisely as possible?
HINT: you may wish to refer to your earlier answers about explaining the general mortgage broking process to
clients.
Each and every step of the process is explained to the client in a very specific and minute manner so that each of
the processes is understood properly by the client.
The clients are asked specific questions with respect to all their information and in this manner all the
information from them are collected in concise manner.
3. Other than finding the right product to suit your client's practical needs, as a broker, you are expected to assist
your clients to efficiently complete the loan approval process in order to gain a loan approval in the shortest
time possible and on the best available terms. Name and briefly describe three ways you might achieve a good
outcome for these expectations.
HINT: in your answer, think about things like loan proposals, supporting documentation and risk assessment.
In order to complete the loan approval process in the shortest time possible and the best available methods, all
the documents that are required from the end of the client has to be collected initially so that these information
can be submitted for the purpose of checking.
All the information is submitted and all the processes at the actual time frame are executed so that the loan
approval process is completed in the best time possible.
4. For each of the three client services you've identified above, describe how you would assist clients with special
communication needs.
HINT: Be sure to identify particular resources that you might access to assist such clients.
In accordance to the client services that have been discussed above, the special communication needs that
needs to be undertaken is discussed as follows:
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1. Undertake a meeting after every six months with the help of which the grievances and issues of the client
can be met.
2. Maintain follow up over phone and advice the client with respect to the new products and services that can
be purchased by the client.
3. All news and information are conveyed to the client via email with the help of which the client will remain
updated.
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Activity 6
Sales and advertising
Download the marketing strategy from the LMS.
1. Based on the information in the marketing strategy, name at least two printed publications that ABC Insurance
Brokerage puts out to advertise to clients.
The two printed publications where ABC Insurance Brokerage advertises are:
Insurance Adviser Magazine
Broker Buzz enewsletter
2. Imagine you work at ABC, and you've been discussing marketing options with another broker in your office.
You're both wondering why your branch isn't on social media! Pick out two points in the marketing plan that
hint at the fact that social media marketing might be a good idea for the office.
Social media marketing will be a good idea for the office mainly due to the fact that most of the customers are
following social media and therefore the advertisement of the office will be much better with lower cost rather
than other advertising sources.
The other factor has been due to the fact that social media is helpful in advertising even in other countries and a
transparency about their products and services to the customers are maintained as well.
3. Look at ABC's customer and user information. Imagine you're briefing a graphic designer to create a brochure,
per the anticipated sales activities in the plan. What are three characteristics that this brochure should have in
order to cater/appeal to the customers that ABC focuses on?
The three features that the brochure has to have are as follows:
1. The brochure has to be attractive and colourful
2. All the relevant and precise information that needs to be conveyed to the customer has to be present
3. The brochure needs to have pictures and graphs with the help of which the customers can get attracted.
4. Name three different strategies that a finance or mortgage broking business might use to promote their
products or services.
HINT: this can include pricing, product, advertising, branding, promotion, and other strategies.
The three different strategies are:
Enhance their level of advertising in the market with the help of which the customers have knowledge about the
company
Improve the pricing of the product and the services.
Undertaking proper promotional activities with the help of which the products and services offered and
promoted to the customers.
5. For each of the strategies named above, name at least three advantages and three disadvantages.
HINT: some of the advantages and disadvantages may relate to standing out in a competitive marketplace.
Advertising
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Advantages:
The customer base will increase
Market penetration will increase
Sales revenue will increase
Disadvantages:
Expenses will increase
Need to provide time on advertising may reduce the efficiency of work
Advertising in some cases may have a negative impact
Pricing
Advantages:
Would lead to effective product pricing
Create competitive edge
Enhance the level of sales
Disadvantages:
Reduce the level of profit
Products and services may not be priced as per the quality
Can have a negative impression about the products and services to the customers
Promotion
Advantages:
Increases sales
Increases revenue
Creates competitive edge
Disadvantages:
Reduction in profit
Increase in expenses
Loss in focus over operational activities
6. Imagine you have limited time/a limited budget, and you have to choose just one of the three strategies to focus
on/start with. Which one would you choose, and why?
In case of limited time and budget, the one strategy that will be selected will be the advertising strategy.
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This is due to the fact that advertising would lead to creating awareness among the customers about their
products and services in the market with the help of which sales and profit for the company would increase.
7. How would you keep up to date on the changing characteristics of your target market? Describe your
system/process.
A systematic market review and survey will be the option undertaken in order to stay updated with the changing
characteristics of the target market.
8. Describe what you have to do (or avoid doing) in order to meet your basic ethical and regulatory obligations for
promoting your services.
In order to maintain the basic ethical and regulatory obligations for promoting the services, a proper code of
conduct has to be undertaken with the help of which all the services will be done in an ethical manner.
In the same way, all the activities will be monitored in order to have an idea that regulatory obligations are
maintained by the employees.
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Activity 7
Practical compliance procedures
1. List two of the procedural requirements in the National Consumer Credit Protection Act/Regulations.
HINT: a procedural requirement is a thing that you have to do (requirement) as part of the process (procedure)
of providing credit assistance.
Two procedural requirements in the National Consumer Credit Protection Act includes that
a. A business should have the licence of credit or the authorization from the credit licensee.
b. The act requires the persons that are involved in the obtaining the credit contracts or the consumer
leases should be licensed and must adhere with the requirements of responsible lending.
2. For each of the procedural requirements listed above, describe how they would impact your day to day work
practices.
For each of the procedural requirements that are identified it is necessary that the different forms of disclosure
documents are provided to the customers. This is because there are special requirements as well as exemptions
that are applicable to some of the entities that engage in the credit activities. Furthermore, complying with the
procedural requirements for day to day basis helps in supplying the information to the consumers that they
need to understand the activities of credit that is provided to them.
3. Imagine you're auditing your firm's client files. How would you check whether each of the procedural
requirements above had been fulfilled?
To determine whether the procedural requirements have been complied the following evaluations should be
conducted;
a. Ascertaining whether the consumers are provided with the access of information that would help them
in making decisions and understanding of rights;
b. Conducting an audit check whether the disclosure of credit guide regarding the application of fees has
been made or not.
c. Performing check whether the credit assistance is respect of the credit contracts that is associated with
the agreement.
4. Read the information from ASIC on credit compliance tools. Choose one of the procedural requirements you've
identified above. Describe:
 the requirement
 its source in the Act or Regulations
 the time frame
 who has responsibility for meeting the requirement in day to day conduct
 who is responsible for monitoring compliance
 how compliance should be monitored
Section 97 of the National Consumer Credit Protection Act requires the credit licensees to meet the trust
account obligations upon holding or receiving the money on behalf of the another person during the course of
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providing credit services. Under the national Credit Act a time extension of 21 days is provided prior to the due
date of lodging forms
5. Download the sample position profiles from the LMS. Identify three things that the senior manager is expected
to do, that the mortgage broker assistant cannot do.
Three things that the senior manager is anticipated to is given below;
a. Providing credit assistance to the customers for managing the contract
b. The senior manager can manage the credit contracts on behalf of the credit provider
c. A senior manager is anticipated to perform the duties in respect of the credit activities that is specified
in the authorisation
6. How would you make sure you stay up to date on the latest regulatory literature?
HINT: this might involve subscribing to an email mailing list from a certain regulator…
In order to stay up date with the latest development in the regulatory literature a subscription to the regulatory
resources of ASIC can be done.
7. Why is it important to communicate regulatory changes as soon as possible?
It is important to communicate the regulatory changes soon because actionable steps and clear instructions can
help the staff in becoming the familiar with the new procedure and elements that might create an impact on the
role of credit provider. Communication of regulatory changes helps to cater with the learning styles and
concerns relating to the change procedures.
8. In your own words, summarise what a broker has to do to be compliant with the rules about disclosure of
capacity.
The broker needs to comply with the disclosure documents relating to the fees or charges. Furthermore, the
broker must be provide the disclosure of the proposal document by stating that not fee or charges has been
imposed.
9. In your own words, explain the legal concept of 'duty of care'.
A duty of care can be defined as obligation that is applied on the individual that requires to comply with the
standard of reasonable care at the time of performing any acts that may foreseeably harm others.
10. Give an example of a situation where a broker has a duty of care to a client.
A broker has the product liability where he owes the duty of care to the consumers that ultimately purchases
and uses the products.
11. In your own words, explain the legal concept of 'fiduciary duty'.
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A fiduciary duty can be defined as the obligation of one party to act in the best interest of the other party. The
obligation is mostly fiduciary because someone is entrusted with the care of money or property which is also
regarded as the fiduciary obligations.
12. To fulfil their fiduciary duty to their client, what does a mortgage broker need to do?
To meet the fiduciary duty of the clients the mortgage broker must provide a written assessment regarding the
copy of contract within the seven business days.
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Activity 8
Lenders mortgage insurance
1. Explain what benefits lenders mortgage insurance (LMI) delivers to the Australian market place.
Lenders Mortgage Insurance allows the Australian market place to run smoothly, as it covers the risk attributes
of the lender and allows the borrower to take huge sum of home loan.
2. Will a borrower be required to demonstrate they can service a loan that requires LMI, or does the LMI replace
that requirement for the borrower? Explain your answer.
Yes, the borrower needs to demonstrate that they can service a loan that require LMI, as specific requirements
needs to be met by each borrower before LMI insures than loan. Without the security of LMI home loan, the
lenders are hesitant in providing loan to the borrowers.
3. Distinguish how LMI protects a mortgagee in the event a default on a mortgage-backed loan, in comparison to a
mortgagor.
The mortgage-backed security does not provide any kind of protection to the lenders, it only provides continues
flow of funds from the borrower. In case of default LMI secure the payments of the lenders and provides the
loan amount in place of borrower.
4. List two reasons a borrower might choose to undertake a mortgage where LMI was required by the lender.
The LMI provides security to the lender, which will increase the chance of the borrower to get the loan. In
addition, LMI allows the borrower the increase the loan amount that can be taken from the lender.
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Activity 9
Compliance, regulations and legislation
The Reserve Bank of Australia (RBA) has responsibility for monetary policy and overall financial system stability.
The Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC)
are each responsible for regulatory oversight within the financial services sector.
1. Which of the above organisations set the cash rate, and when do they make decisions whether to adjust the
cash rate?
The Reserve bank of Australia has sets the cash rate and undertake the decisions to adjust the cash rates.
2. Name the three types of market participants that are classified as authorised deposit-taking institutions (ADIs)
and the regulator that has responsibility for them.
Authorised Deposit taking Institutions
Non-ADI Financial Institutions
Insurers and Fund Managers
3. How does the regulator ensure that the ADIs maintain adequate capital based on the risks associated with their
activities?
The regulator ensures that ADIs maintain sufficient capital based on the risks related to their activities by:
By keeping minimum levels and ratios of various kinds of capitals
Creating and maintaining internal processes to review and notify key changes in their capital base
Maintaining a process for implementing "risk weights" to every credit risk to which the Australian ADI is exposed
4. Name the primary legislation administered by ASIC.
Corporations Act 2001
5. List five (5) core powers ASIC has under the laws they administer.
1. Register companies and managed investment schemes
2. Register liquidators and auditors
3. Seek civil penalties from court
4. Grant Australian financial services licenses and Australian credit services
5. Grant relief from various provisions of the legislations that they administer
6. AUSTRAC is Australia’s financial intelligence unit, with regulatory responsibility for anti-money laundering and
counter-terrorism funding (AML/CTF) and financial transactions reporting (FTR).
List the three (3) primary obligations that reporting entities have under the AML/CTF and FTR Acts.
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The three primary obligations that reporting entities have under the AML/CTF and FTR Acts are:
1. Threshold Transaction Reports
2. International Fund Transfer instruction reports
3. Suspicious matter reports
7. Credit providers are required to be members of an external dispute resolution (EDR) scheme. Name the two (2)
main EDR agencies and describe their primary objective.
Australian Financial Complaints Authority: The main objective is to receive, investigate in order to facilitate
resolutions and undertake better decision making process.
Credit and Investments Ombudsman: The main objective is to record and investigate and resolve issues
Energy and Water Ombudsman Limited: The main objective is to resolve the issues that takes place.
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Activity 10
Apply principles of professional practice
Read the extracts below from the Financial Ombudsman Service (FOS) website at www.fos.org.au.
The commentary below from FOS summarises a judgment related to a consumer complaint made against a lender,
described as financial services providers (FSPs) where a broker was involved.
Case Study 1 from FOS - Role of a broker
John wanted to purchase a new home. The real estate agent referred him to Sam, a mortgage broker, to obtain
finance. Sam asked John to sign a low documentation (low doc) application. John subsequently accepted an offer
from the FSP for a $430,000 home loan, secured by a mortgage over his home. He failed to make his loan
repayments on time and the financial services provider (FSP) started legal proceedings for possession of his
home. John lodged a dispute with FOS.
John said that the FSP should not have given him the home loan because he could not afford the repayments.
After John signed the loan application, Sam changed information on the loan application so that it would meet the
FSP’s servicing requirements. If the FSP had checked the details in the loan application with John, the FSP and
John would have discovered the inaccurate information and the FSP would not have provided the loan to John.
We considered that the FSP was not responsible for Sam’s conduct. While the FSP did not have any agreement
with Sam, it did have an agreement with a mortgage manager Sam was affiliated with. In that agreement, the
mortgage manager acknowledged that it was independent and did not represent the FSP. Therefore, Sam did not
have any actual authority to act as the FSP’s agent. There was also no information showing that the FSP had
represented to John that Sam was its agent. Even though the FSP paid commission to Sam, we considered that
the commissions were not enough to establish an agency relationship.
We also considered that the FSP was entitled to rely on the information in John’s loan application when assessing
his ability to repay his home loan. There was no inconsistency in the loan application or other information provided
to the FSP had which should have caused it to check any details with John or Sam.
We concluded that the FSP had acted responsibly when it granted the home loan to John.
Case Study 2 from FOS – Broker’s conduct and consumers’ conduct
In 2008, Mike and Felicity asked for advice from a mortgage broker about the best way to borrow $30,000 to help
Felicity develop her business. At that time, they already owed the FSP $50,000 for a home loan. The broker
advised them to apply to the financial services provider (FSP) for a loan to purchase an investment portfolio and
for a line of credit for the business. The broker advised them to mortgage their home to provide security for the
loans.
The broker completed their loan application with incorrect details. In particular, the application stated that:
 Mike’s income was $75,000 and Felicity’s income was $50,000. However, Mike’s true income was
approximately $16,000 and Felicity’s true income was $14,000.
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 Felicity contracted as a child care centre provider and Mike was a locum teacher.
The FSP provided Mike and Felicity with three loans totalling $342,000 and Mike and Felicity provided a mortgage
over their home as security for the loans.
Mike and Felicity later lodged a dispute at FOS. They said:
 They had signed three pages of the application and had not seen any other pages of the application. They did
not see the other pages of the application until the FSP provided them with a copy of the application after they
lodged the dispute at FOS.
 The broker encouraged them to sign blank documents. When they signed the income declaration in the
application, it did not state their incomes, it only stated the amount of the loans.
 The FSP did not check their income with their accountant.
 They had taken legal action against the broker and recovered $80,650 in compensation.
 They used one of the loans to make repayments on the other two loans. When there were no remaining funds
in the first loan, Felicity used a pension from her superannuation funds to make loan repayments.
In responding to the dispute, the FSP said:
 Its low doc lending policy did not require it to verify their income.
 It had relied on information provided by Mike and Felicity’s broker.
 Mike and Felicity’s repayment history on their existing home loan was satisfactory and their credit reports
were clear.
When we considered their dispute, we noted that Mike and Felicity’s age was a ‘red flag’ because they were both
60 years old when they applied for the loans. The FSP had made further inquiries with the broker about Mike and
Felicity’s ability to repay the loans, and the broker told the FSP that Mike and Felicity had $450,000 equity in their
home and $360,000 superannuation which they could use to reduce their debt when they retired. The FSP also
knew that Mike and Felicity were currently working and that the loans were for investment purposes, which could
be expected to create additional income and possible capital gains.
We could see that the FSP had complied with its low doc lending policy when it approved the loans. There were
no red flags which might have alerted the FSP to the false information in the application, so it was entitled to rely
on the information in the application to assess whether Mike and Felicity could afford the loans.
We analysed Mike and Felicity’s ability to service the loans based on the information in the application and the
FSP’s knowledge of their existing home loan. We concluded that Mike and Felicity could afford the loans.
Although the broker may have done the wrong thing, the FSP did not know and had no reason to suspect that the
information the broker provided was inaccurate Also, the broker was Mike and Felicity’s agent, not the FSP’s
agent. For those reasons, the FSP could not be held liable for the broker’s conduct.
Referring to your course materials, you will be aware the National Consumer Credit Protection Regulations (NCCP)
require persons acting in credit activities to follow a National Credit Code. Refer to the sample Client Preliminary
Assessment Questionnaire from Loan Market in the appendix from your course materials.
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You will find it helpful to refer to ASIC Regulatory Guide 205 and 209 to research your answer. Google ‘ASIC RG205’ and
‘ASIC RG209’ to ensure you have the most up-to-date ASIC guides when researching your answers.
1. RG205.45 refers to engaging in credit activities “efficiently, honestly and fairly”. While the FOS judgments in Case
Study 1 referred to the fact the FSP acted responsibly, explain whether the broker in Case Study 1 acted honestly or
fairly in your view.
No, the broker acted did not act honestly or fairly, as the documentation of the borrower was manipulated before
presenting it to the FSP.
2. In Case Study 2, the broker asked the client to sign incomplete application forms. Explain the risks of this in all
situations when entering into contracts.
There is specific high risk involved in signing the incomplete application form, as the broker could manipulate the
interest rate for their benefit and conduct unethical activities.
3. Determining a client’s loan serviceability is a critical function of all loan assessments by an FSP under the NCCP. In
Case Study 2, the broker overstated the client’s income, and a compensation determination against the broker of
$80,650 was made.
Explain why accurate client serviceability on loans is so important for brokers and FSPs to document and take
account of in the context of a modern financial system.
The modern financial system allows the borrower to sue to the broker and FSP for their wrong doings, which
increases the significance of correct documentation process.
4. What laws and associated penalties apply for brokers that breach their duties?
Under section 331 of National Consumer Credit Protection Regulations 2010 Act relevant penalties are imposed on
borrower for breach of their duties.
5. Referring to both RG205 and RG209, explain whether the FOS would likely make an adverse judgment against the
broker in Case Study 1, and if so, why or why not.
No, the FOS would not likely make an adverse judgement, as the broker is on fault for providing wrong information
to the FSP.
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Activity 11
Compliance, regulations and legislation
Background
A retiring couple decided to purchase a new home as the value of their existing home had increased considerably in
recent years, giving them enough equity to apply for another property, keeping their existing property for
investment purposes.
A family friend who was a mortgage broker (‘the broker’) suggested that, while they had adequate security for the
new loan, they lacked the capacity to repay the loan if they chose to retain their existing home for investment
purposes.
The broker suggested that they needed to sell their home first in order to service a loan for a new property. To
maximise the sale price of their home, the broker suggested that it be painted and renovated. To pay for these
renovations, the broker arranged for the mortgage manager to increase the couple's existing line of credit (LOC) held
with a bank.
On completion of the renovations, the couple listed their home on the market and received an offer that matched
their asking price. However, without having first exchanged contracts on the sale of their home, they exchanged
contracts on the new property. Unfortunately for them, the sale of their existing home fell through and the couple
were faced with the possibility of not being able to complete the purchase of the new property.
The couple again approached the broker for assistance, who arranged for a bridging loan through the mortgage
manager.
The couple advised the broker that on the sale of their existing home, they wanted their bridging loan to be
converted to a LOC. However, the broker neglected to advise the lender or the mortgage manager of this.
Consequently, the mortgage manager discharged the existing LOC and converted the bridging loan to a standard
principle and interest loan (‘P&I loan’).
On the basis that their bridging loan had not been converted to a LOC as they had requested, the couple refinanced
their new P&I loan with another lender. This resulted in the couple incurring a large ‘break fee’.
Complainants' position
The couple were referred to the CIO by the mortgage manager. The mortgage manager considered that that the
broker had not exercised the requisite care and skill in not conveying the couple’s instructions to it, as required by
the MFAA Code of Practice.
Due to the couple's friendship with the broker, the couple were not prepared to complain about the conduct of the
broker. Instead, they sought to have the break fee waived by the mortgage manager on the basis that, prior to
refinancing, the couple were advised in writing by the mortgage manager that they would not incur any fees and
charges upon refinancing.
Financial services provider's response
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The mortgage manager asserted that the representation was not intended to be misleading. The break fee was
imposed by the lender, not the mortgage manager. According to the mortgage manager, the representation that the
couple would not incur any fees and charges related only to fees and charges that were payable to the mortgage
manager, not the lender.
1. Was that the couple financially disadvantaged as a result of their bridging loan being converted to a P&I loan
instead of a line of credit? Explain.
Yes, the couple was at financial disadvantaged as a result of converting the bridging loan to P&L loan, as the
bridging loan allowed them to pay only interest. On the other hand, the P&I loan will force the couple to pay
principal and interest, which increases their debt obligations.
2. Did the mortgage broker breach any compliance requirements? Explain.
Yes, the mortgage broker breached the compliance requirement, w here the checklist for the client file was not
filled accurately.
3. What compensation (if any) do you think would be reasonable in these circumstances. Explain.
The couple will not be provided any kind of compensation for the problems created by the mortgage broker.
Moreover, there is no official complaint conducted by the couple, as without any complaint the action cannot be
taken.
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Activity 12
Responsible lending
Background
From March 2011 onwards, Ms M engaged a broker who arranged 14 loans for her with the same small amount lender.
The question arose whether the broker and lender had complied with their responsible lending obligations under the
National Consumer Credit Protection Act 2009 (Cth) (NCCP).
The preliminary review of the complaint was that they had not. The information available showed that Ms M could not
have met her financial obligations under the loans. In particular:
a. Both the broker and lender were unable to provide us with any information which showed that they had made
reasonable enquiries about Ms M’s financial situation before each loan was entered into.
The lender also informed us that its procedure at the time was that a new loan application was only required to be
completed once every six months.
The previous loan application would be relied on for any new loan applications. In Ms M’s case, only two loan
applications were completed for 14 loans. As such, we considered that the lender did not make reasonable enquires
about her financial situation at the time she applied for each loan.
b. Both the broker and lender were unable to provide us with any information which showed that reasonable steps
were taken to verify her financial situation.
Around the time that Ms M entered into the loans, her bank account statements disclosed that she had
approximately four other small amount loans. We also understood that Ms M was a single parent with three
dependent children.
There was no information which indicated that either the broker or lender turned their mind to Ms M’s other debt
obligations and the cost of Ms M’s general living expenses when verifying and assessing Ms M’s financial situation at
the time she applied for each loan.
1. Were the loans not unsuitable? Explain.
No, the loan was not suitable, as both the broker and lenders did not conduct any analysis of her financial position
before providing her new loans.
2. What compensation (if any) do you think would be reasonable in these circumstances? Explain.
No, compensation will be provided under these circumstance, as both the broker and lenders did not conduct any
analysis of her financial position before providing her the loan amount. Under the National Consumer Credit
Protection Act 2009, both broker and lender need to follow the requirement to give credit guide before lending
money to the borrower. There is no information regarding the credit guide, which was provided to Ms M before
issuing her additional loans.
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Activity 13
Seeking specialist help
1. How would you determine whether your client's needs are beyond your scope of expertise?
In case the need of the client is out of the powers and limitations of the company then it would be expertise
2. How would you determine whether your client's needs are beyond the scope of the services you are qualified
and/or licensed to provide?
If the needs of the client are beyond the powers that has been authorised to us by the company
3. How would you choose an appropriately qualified professional to refer your client to?
It would depend upon the need of the client.
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Activity 14
Record-keeping responsibilities
1. What should your client records contain, at a minimum? Think about elements like basic personal information,
client backgrounds, and records of contact.
At a minimum the personal details of the client has to be maintained and information with respect to the
income statement of the client.
2. Describe how you would keep a client's file organised, and easy to navigate.
All the information of the client are maintained in separate files and folders with the name of the client so that it
will be easier to navigate.
3. What should notbe included in a client file? In your answer, describe how you'd keep a client file clear and
concise.
Any irrelevant information that is not associated with the client needs to be excluded from the file of the client.
All the duplicate copies of the information of the client need to be maintained in an orderly manner in order to
make it clear and concise.
4. Briefly describe your compliance obligations regarding keeping client records secure.
The compliance obligation involves maintaining secrecy of the record of the client so that no third party can gain
access of it.
5. How would you store your client records securely?
All the information will even be maintained as a soft copy in the computer in distinct folder with an encrypted
password and in the company server so that other brokers of the company can gain access.
6. How would you make sure that client records were readily available to other advisers/brokers in your
organisation? In your description, make sure you cover how you'd do this without the records simply being
available for everyone and anyone to access.
The information of the client is kept in the central server of the organization and the ones who have access to
the encrypted password can gain access thereby restricting others from gaining access.
7. How would you keep your continuing professional development records secure, accessible and up to date?
The professional developments will be kept secured accessible and up to date by recording the new information
and saving it in the folder which is accessible with the help of the password and thereby no unauthorised
personnel can gain access to the same.
8. What records do you need to keep to show that you have authority to act on behalf of your client?
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The information that is strictly personal of the client is not shown to the others.
9. Name the statutory records that a financial services provider has to keep. List them in the correct categories:
o Records under the Corporations Act
o Records under the Electronic Transactions Act
o Records under the AML/CTF Act
o Records under the Financial Transactions Report Act
o Records under the Privacy Act
o Records under the National Consumer Credit Protection Act and National Credit Code
o Records under the PPS Act
o Records under taxation laws
1. Financial records
2. Electronic signature of the client
3. Retain records for seven years after ceasing to provide a designated service
4. Financial Transaction reports
5. Collection, maintenance, use, and dissemination of personal information.
6. Credit contracts
7. Secures payment and performance of an obligation
8. Maintenance of the books of accounts
Nov 2018