ASIC’s review of mortgage broking in spotlight
An Australian Securities and Investments Commission (ASIC) review of the mortgage broking sector may act as a catalyst for changed remuneration arrangements when it is released later this year.
The author of the Australian Banker's Association's (ABA) Retail Remuneration Review, Stephen Sedgewick has specifically pointed to the importance of the ASIC review in determining his own findings with respect to remuneration issues around mortgage broking.
However his issues paper released this week noted that while, in the Netherlands, commission payments had been banned for mortgage broking activities, the structure of the Australian industry was likely to make this difficult.
"… some Australian banks rely very heavily on brokers for key components of their business, maintaining only a limited branch network, and mortgage brokers contribute a substantial part of the new mortgage activity of even the largest banks," his issues paper said. "The costs incurred by third-parties in providing these services need to be met (either by banks — perhaps on a fee for service basis since banks avoid incurring substantial costs that would otherwise accrue to them — or by customers through fees for advice)."
"The growth of this market segment, however, suggests that brokers provide a service that many potential mortgagees value. Any move to reduce or eliminate commissions in Australia would need to include regulatory change sufficient to ensure that the changes are competitively neutral."
"In Australia, conflicted remuneration (such as commissions) has been banned in respect of financial advice on Tier 1 products and is being scaled back in life insurance. In addition, given the limited work undertaken by introducers and referrers, the upfront commission paid to them for a successful ‘sale' appears to be disproportionately high in comparison to brokers and aggregators. Bonus payments for high-volume third-party channels are an additional payment, which further incentivises the third-party channels and increases the risk of poor customer outcomes," the issues paper said.
"These additional payments appear to be unrelated to the effort required to make the additional sale. The terms of reference require the review to have regard to ASIC's work to examine the mortgage broking industry in Australia. The review is hoping to gain further insights into this market segment when ASIC publishes its report, noting that the review did not duplicate all of ASIC's data gathering in the interests of minimising the compliance burden on banks and the wider remit of the ASIC review."
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