The ABA's director of policy explains why commission changes are part of a wider reform package
The banking industry is undergoing enormous change in response to concerns surrounding bank practices, conduct and culture. Reform is not new to the sector; banks have participated in 51 inquiries since the GFC in 2008.
The Banking Reform Program – Better Banking has already delivered several important and positive reforms to the industry, with more to come. Changes to the mortgage broker industry have been a key part of this program.
A common concern among customers is that commissions, bonuses or other incentives might mean that customer interests are not always put first.
Across the board banks have started to address this with changes to incentive structures for bank staff that focus less on sales and more on customer service and ensuring the right product for the right person.
In May last year the Australian Bankers’ Association commenced work with a cross section of representatives from the mortgage broking industry to look at how it could promote better customer outcomes in mortgage broking, while preserving competition and maintaining customer choice.
Mortgage brokers play an essential role in Australia’s home loan market – more than half of all home loans provided by the banks are originated by brokers. Together with our colleagues in the Combined Industry Forum, the ABA and the banks are committed to implementing changes that make a meaningful difference to customers, while supporting a vibrant mortgage broking industry.
In December last year the CIF agreed on a landmark reform package to promote better conduct in the industry and implement a better oversight program over all mortgage brokers. Part of the reform, for the first time ever, sets a standard definition for ‘good customer outcomes’.
This will mean that customer outcomes will be the focus of every mortgage broker, with the size and structure of the loan, affordability, responsible lending requirements and individual customer needs all taken into account when recommending a loan.
This new standard goes above what is required by law by considering whether the loan is appropriate and meets the customer’s needs.
An industry-wide approach to monitoring the behaviour of mortgage brokers, ensuring adherence to these new standards, will be an important part of this reform.
This reform sends a clear signal to the community that the mortgage broking industry is committed to delivering value and making sure the needs of customers are met. The new standard definition makes it clear that the industry will hold itself to a higher degree of scrutiny than the law requires, and places the customer at the centre of what we do.
On the ground, there will be strong oversight measures to ensure that the industry meets its commitments. These include:
- customer feedback and mystery shoppers to ensure good customer outcomes are being delivered
- training and education
- annual review of the Forum’s reform package
- reporting and ongoing review of remuneration structures
These initiatives and others will mean that poor behaviour or poor customer outcomes will be more readily identified and quickly addressed. It will also mean that lessons will be learnt from each case and will feed into further reforms in the future.
Building upon this big year of reform for mortgage brokers, in the coming 12 months the CIF will also look at implementing a single, portable broker identifier. This will mean brokers and their activities will be much more easily identified to detect poor behaviour and help lift overall standards in the market.
The CIF will continue working throughout 2018 to finalise the governance framework that will streamline monitoring and supervision so brokers can spend more time with clients. It will report semi-annually to the Federal Government, Treasury and ASIC on progress.
Banks look forward to working with the government on continuing to implement the Forum’s changes to ensure customers benefit from fierce competition for home loans.
Christine Cupitt has been the director of policy at the Australian Bankers’ Association since 2014. Her background in compliance and regulation includes time at KPMG, AMP, Hillross Financial Services and The Link Group.