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The federal government has officially introduced legislation to ban the payment of conflicted remuneration to mortgage brokers.
The Morrison government has tabled its Financial Sector Reform (Hayne Royal Commission Response–Protecting Consumers (2019 Measures)) Bill 2019, which contains a new best interests duty obligation on mortgage brokers, as well as a ban on the payment and receipt of “conflicted remuneration”.
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The provisions form part of the government’s response to the final report of the banking royal commission.
The federal government previously announced that it would not propose a ban on commission-based remuneration, as recommended by commissioner Kenneth Hayne, and would delay consideration of a borrower-pays model until after a review has taken place in 2022.
However, in its new legislation, the government has enshrined a ban on the payment of conflicted remuneration, which includes volume-based and soft-dollar remuneration, in line with the Combined Industry Forum’s (CIF) reforms.
The bill has defined conflicted remuneration as any benefit, whether monetary or non-monetary, that is:
- given to a licensee, or a representative of a licensee, who provides credit assistance to consumers that, because of the nature of the benefit or the circumstances in which it is given, could reasonably be expected to influence the credit assistance provided (including, therefore, the choice of credit contract or credit provider or the choice of whether to provide credit assistance or not); or
- given to a licensee, or a representative of a licensee, who acts as an intermediary and because of the nature of the benefit of the circumstances in which it is given, could be reasonably expected to influence whether or how the licensee or representative acts as an intermediary.
If the legislation is ratified, the ban on the payment and receipt of conflicted remuneration would take effect on 1 July 2020 and would only apply to credit contracts entered into on or after the effective date.
Industry stakeholders had feared that the ban on conflicted remuneration would call into question the payment of trail commissions after 1 July 2020 for loans settled prior to the effective date.
In addition, the bill limits the period in which commissions can be clawed back from brokers and aggregators to two years and prohibits borrowers from passing on this cost to consumers.
The setting of the clawback period comes despite calls for the clawback period to be reduced from a maximum of two years to a maximum of 12 months, in line with the net of offset payment period, which has been extended by the government from 90 days to 365 days.
