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Promoted by NextGen.Net
This year, compliance has been a key point of focus for the lending industry. With the fallout from the royal commission still working its way through the finance infrastructure, lenders, aggregators and broker groups have been busy working on ensuring that all new loans coming in are checked for compliance as quickly and efficiently as possible. But what about variations on existing loans? Tony Carn, NextGen.Net’s chief customer officer, addresses the elephant in the room.
Q. Looking back over the year, compliance seems to have been the word on everyone’s lips. What do you think has been the main driver of this?
Tony Carn: The real driver for that has been the regulatory requirement on lenders under the banner of responsible lending.
For responsible lending, there are two key points: one is capturing requirements and objectives (making sure that the loan being approved by the lender matches the requirements and objectives of the customer so that the loan product is suitable – or, in future, is in the best interests of the consumer); and the second part is really being responsible around the assessment of that application and making sure that income and expenses are appropriately assessed at a lender level.
We’ve seen that permeate a lot recently in how banks calculate living expenses, which unfortunately has become pretty comprehensive and affects their time to approval as well. So that is the big driver.
Q. How has NextGen.Net been helping reduce the compliance burden?
We’ve worked very hard to follow a set of predetermined design principles to minimise the impact on the broker and their customer. This approach also ensures quality data is delivered to the lender, streamlining the process and enabling them to process the loan in a timely and efficient manner.
We did that through the digitisation of that format from the point of application by way of a compliance tab, which is applicable to the vast majority of lending that happens in the market now.
Q. Do you think the compliance process should be standardised across lenders?
Yes, it would be good to drive an industry standard for that. ApplyOnline is only one key part of a bigger ecosystem that involves CRM systems and lending origination platforms as well, so creating one standard is very important.
We have been working tirelessly with a number of lenders who were first movers in that space to deliver a standardised approach, and they have made a really good, collaborative effort in driving that standard.
However, there are sometimes specific needs a lender has where the solution does need to digress slightly from that standard – whether that be due to their advice on regulatory requirements or what is best practice. Or it could be driven by their lending platform, or core banking system, and what their capabilities are.
While these deviations are managed pretty well, transforming the different systems so they are all using the same language could add a lot of value. This would not only benefit the lender, it would also benefit brokers and broker groups, too.
Q. How would using a standardised compliance system benefit brokers?
If you’re submitting a deal through ApplyOnline to a lender, the compliance is built into the application process, dynamically. So, this standardises the process, saving time. These tools are there to not only ensure that the deal is compliant, but also to provide a clear audit trail and transparency of the process. This gives brokers the ability to say: “Not only are we compliant, but here is the evidence of what we’re doing to help our customers across the loan process.”
But it’s not only the standardisation of living expenses that we’re driving. It’s also standardising the matrix and how brokers can do a serviceability assessment in a standardised way to compare lenders and standardising the benchmarking and data reporting.
Q. What do you think the next big thing in compliance will be?
While we operate in a relatively standardised framework and provide compliance, traceability, auditability and transparency for brokers and lenders via ApplyOnline as a digital application platform, that is mostly in relation to new lending, or new-to-bank customers.
So, if I go to a lender as a new customer, there’s a compliance process to go through to make sure that the requirements and objectives are captured, and the loan approved is appropriate. But when I’m doing a variation, I think that’s an area which really needs the spotlight thrown on it. How are they going to deal with that efficiently and quickly?
The really big gap in the market – and I think it’s the elephant in the room – is what is that compliance framework like for loan variations? For example, once a broker settles a loan, there can be a lot of transactions that customers will typically do after it settles, such as a conversion from principal and interest to interest-only (or vice versa), or doing a principal decrease, consolidating other debts, extending the term of the loan application, changing repayment frequency, etc.
Only a handful of lenders have really made the effort to empower the broker to actually perform those transactions on their behalf with the customer in a standardised process, which is transparent, automated and auditable.
It is really important we have that robust mechanism for collecting, validating and assessing that application, as well as managing the requirements and objectives – including what’s in the best interest of the customer going forward – in variation applications, too.
While all the lenders have compliance mechanisms for variations, not many of them are doing it in an automated, efficient and standardised way.
There are a number of lenders that are now starting to plan out those solutions, like NAB, ING and AMP Bank, but I still think that there is a very big opportunity for the broader market to make sure that we’re getting this right.
I don’t think this has been flagged as a priority, but it probably should be the number one priority. While it’s a big effort, it’s not an expensive effort.
Q. Why would this help brokers?
Having a standardised and digitised process for variations would help the lender, help the customer and ultimately help the broker provide those audit trails to demonstrate the ongoing work they undertake when the trail commission review takes place in two years’ time.
The broker groups themselves recognise the importance of this, and it’s up to the lenders to start empowering brokers to do variations in the same way they do new deals. At the end of the day, the broking industry knows that that’s the connection between the effort they take and the trail payments that they receive.
During the royal commission, Sam White from Loan Market and Susan Mitchell from Mortgage Choice were among some of the driving voices that recognised that we need to be able to demonstrate exactly what brokers do for customers before the
review in 2022.
So, if lenders were offering digitised variations to brokers in the same way that they do for new business, that would make demonstrating ongoing value a lot easier.
