The Importance of Independent Loan File Audits

The Importance of Independent Loan File Audits


With the ongoing scrutiny of the broking sector and lenders applying pressure on aggregators to ensure their ACL holders are compliant with the Responsible Lending guidelines of ASIC's Regulatory Guide 209 and the Best Interests Obligation guidelines in RG273, there is an onus on brokers to not only be compliant but to also be able to demonstrate their compliance.

An easy way to demonstrate these obligations is to have your loan files independently reviewed on a regular basis.  To fit in with the current demands of the credit climate (urged on mostly by lenders), QED strongly recommends that anyone who writes consumer loans within your business is audited by an experienced independent third party at least once every 12 months.

This will also give you peace of mind that you are operating in line with industry best practice.  By ensuring consistent independent compliance audits are being conducted, you will be able to track any ongoing issues within the business and identify where training may be required for your team. You will have confidence in knowing that internal processes are being followed and your compliance obligations are being met - or more easily be able to determine where the breakdown is.

QED File Audits

Through CompliFast, QED offers independent file audits with comprehensive reporting, corrective action tracking and breach registration, amongst other features.  A pdf report will be generated and available in CompliFast, which you can share with your aggregator or any other interested stakeholder you choose.

In reviewing loan files, the QED Audit Team are examining the following areas to ensure compliance obligations are being met.


Whilst lenders require you to use their tools for demonstrating serviceability, the Law requires that you make your own assessment first.  A broker's-own calculator is essential to ensure you know and can adjust the key figures and assumptions such as interest rates, rate buffers and expense benchmarks in your serviceability calculations effectively.  You can create a calculator that works for you or you can use the one that is included in your CompliFast Broker Tools. Either way, using a broker's own calculator will demonstrate your own due diligence in determining affordability.

In examining the evidence that supports servicing, we are looking (obviously) at proof of income and details of discussions regarding expenses and how you determined affordability, which could include the use of benchmark comparisons such as HEM.

Disclosure Documents

We would expect to see evidence that a Credit Guide was provided to the consumer "as soon as practicable" from the time that you start discussing their personal business with them. There would need to be evidence of a Credit Proposal Disclosure Document and, if you charged a specific fee for your service, there should be proof that a Credit Quote was provided. These documents would need to meet the standards laid out under the responsible lending disclosure obligations.

ID Documents

Beyond just having a name to put on the file, ensuring the accuracy and authenticity of consumer identification will assist you in meeting your ethical obligations to lenders and ensure you are not contributing to the growing issue of fraud within the financial sector. Confirmation of ID documents on file will be included in the audit.

The Consumer's Story 

The QED Audit Team have found in recent months that, of the 6 most common recurring corrective actions for file audits, 5 directly relate to Best Interests Duty (BID) and a lack in documentation on the consumer's "why", AKA Requirements and Objectives.  There should be evidence of conversations that have uncovered the reasons behind the consumer's request, to ensure that the product offered is in the consumer's best interest.  This is a simple matter of file notation.  We are yet to see a customer's story that cannot be explained in three minutes of typing.

What did the consumer want? What was their understanding of their ability to get what they want? What did you have to educate them on? What did they actually need? In meeting BID requirements, you may have needed to offer a product that differs from their initial enquiry and we should be able to clearly see why this was the case.

Independent file audits are not compulsory by any means.  We believe the work you are doing in CompliFast right now is excellent and places you ahead of most of your peers in the industry.  However, as we are seeing, there is more and more pressure from Lenders to have brokers be independently audited.  As the mouthpiece for the Lenders, this pressure is also increasingly coming from Aggregators.

QED's audit service is extremely cost-effective and our team has the most experience of any other independent provider in the Australian marketplace.

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