Earlier this week, Treasurer Josh Frydenberg shared the Government’s ‘roadmap’ to tackle the recommendations that came out of the Royal Commission into Misconduct in Banks, Superannuation and Financial Services.
With both the Government and regulators criticised for not implementing the Royal Commission recommendations quickly enough, Frydenberg promised they would meet at least 20 of their commitments by the end of this year, with the resulting legislation to be introduced by the end of next year. In addition, the regulator highlighted that much of this legislation will be geared towards strengthening the powers of regulators.
The announcement from Frydenberg coincides with the corporate regulator’s release of their enforcement update for January to June. However, the recent message from the Government also emphasised financial industry regulators also have role of tackling misconduct and influencing the right behaviours.
“As Commissioner Hayne stated: 'too often, financial services entities that broke the law were not properly held to account',” Frydenberg said. He did, however, also note that both the Australian Securities and Investments Commission and the Australian Prudential Regulation Authority have moved ‘quickly’ to adopt tougher enforcement stances.
Frydenberg called on industry to:
Comply with the law;
Heed the lessons of the Royal Commission;
Ensure they follow not only the letter but also spirit of its recommendations; and
Truly put customers at the centre of their business.
Choice CEO Alan Kirkland welcomed the Treasurer’s comments but noted his concern that the Government may not go far enough when it comes to the importance of protecting consumers.
“We are glad the Government has committed to move fast on key reforms like stronger professional obligations for mortgage brokers,” Kirkland said, in a public message earlier this week. “Reform to the mortgage broking sector is urgent. We’ve known since ASIC’s 2017 investigation that mortgage brokers fail to get their clients better interest rates and arrange riskier loans. Forcing this sector to act in the best interest of consumers will lead to more people getting a better deal on their home loan.”
The banning of mortgage broker commissions is just one of the many recommendations made to improve conduct in the industry.
However, some former members of the mortgage broker industry are concerned that the Royal Commission recommendations are bit of a ‘blunt instrument’, and that Commissioner Hayne’s recommendations may betray some misunderstanding of how the mortgage broker business works.
Calver Duffy from Calvert J Duffy and Associates spoke to the GRC Professional Podcast a few months ago on this very topic.
“They were looked at in a way that was, I suppose, not commercially real,” Duffy said. “There was no real understanding of what the consequences might be in the real world.”
Duffy suggested there was little statistical analysis of how brokers move the money around between one lender and another lender, nor why they move it around.
Click here to listen to the GRC Professional Podcast: The Jaundiced View of Trailing Commissions.
In the final day of the responsible Lending Hearings, held in Melbourne this week, the Australian Financial Complaints Authority (AFCA) indicated that, while most complainants do not really understand the role of brokers, most of the complaints they received are from the lenders themselves rather than about the mortgage brokers acting as intermediaries.
Banks already improving?
The Australian Banker Association (ABA) also welcomed the Government’s roadmap for revamping financial services legislation.
“Make no mistake: banks understand what the community and Government expects of them and are raising their standards to rightly meet those expectations,” Anna Bligh said, in response to the legislative road map’s release.
Bligh also connected the roadmap to the six changes that have been made to the banking code and to the Royal Commission taskforce that will ‘oversee the industry’s implementation of the recommendations’.
The Choice CEO believes the only solution for these problems to is to solve them quickly.
“The faster these reforms are legislated, the sooner consumers will be better-protected from the practices revealed at the Royal Commission,” Kirkland said.