Government drops broker rem review

While the Morrison government had initially said in its official response to the final report in 2019 that it would ban trail commission payments for new mortgages from 1 July 2020, it later moved away from this position. At first, it said it would delay such an abolition and instead review broker commissions in 2022, which the Treasurer Josh Frydenberg had suggested to Momentum Media that the role of upfront and trail commissions would instead be reviewed in the “back half” of the year.

However, this review has now been dropped.

The minister’s office confirmed on Saturday (19 March) that the Australian government will not be proceeding with the proposed review of mortgage broker remuneration and does not intend to make further changes to mortgage broker remuneration regulations at this time.

“The mortgage broker industry plays an important role in helping Australian homebuyers get a better deal and have more choice when choosing a home loan provider,” Mr Sukkar said. 

“The Morrison Government will continue to strengthen competition between lenders and drive better outcomes for consumers to ensure that Australian homebuyers get the best deal possible on their home loan.

“We have worked closely with mortgage brokers and strengthened outcomes for consumers by implementing a number of reforms following the Banking Royal Commission.”

Based on the feedback the government said it had received on the effectiveness of reforms to date, the assistant treasurer said the government had formed the view the current mortgage broker remuneration structures are “effective in providing consumers the choice they need when choosing a home loan provider”.

Going forward, the Council of Financial Regulators, including the Treasury, ASIC and the ACCC will continue to monitor the sector to ensure it is delivering for consumers.

The MFAA has welcomed the announcement that the 2022 Review of Mortgage Broker Remuneration by the Council of Financial Regulators and the ACCC will no longer be required.

MFAA chief executive Mike Felton said the announcement served as appropriate recognition for an industry that has been reforming for more than five years.

“This decision reflects the effectiveness of the Government’s legislative agenda following the Royal Commission, which included establishing a principles-based Best Interests Duty for mortgage brokers, alongside significant remuneration and governance reforms,” Mr Felton said.

“This decision acknowledges the strong consumer outcomes mortgage brokers deliver, which is the direct result of the incredible work being done by 17,000 mortgage broker businesses as they continue to secure great outcomes for consumers.

“It is also the result of more than five years of constant and consistent work by the MFAA to equip policy makers with the information they needed to make the right decision on this Review.

“Over the past three years, in our regular meetings with Treasury and the Federal Government, we have continued to highlight key industry data as evidence of a healthy, thriving industry which has aligned its interests with those of consumers, so it was extremely gratifying to be invited to the offices of Mr Sukkar in Melbourne yesterday (Friday, 18 March) for a briefing, at which it was confirmed that the Review would not be going ahead.

“In recent months and weeks there has been elevated levels of dialogue on the 2022 Review, with Treasury reaching out to the MFAA to ask for an update on the current state of the industry and our recommendations on whether the 2022 Review was still required.

“Whilst our industry has always been ready to confidently face scrutiny if required, our response was to remind them of the effectiveness of all the reforms implemented to mortgage broker remuneration and conduct, as well as the success of the recent Best Interests Duty in aligning consumer and broker interests and expectations.

“Combined with industry self-regulation over many years, these reforms are delivering strong customer outcomes, and driving consumer trust and confidence in the industry – as evidenced by the key data on the industry, and the current record mortgage broker market share data.

“The alignment of the interests and expectations of brokers and consumers is also demonstrated through other strong industry data sets, including extremely low AFCA complaints, low arrears relative to the lenders’ proprietary networks and customer satisfaction rates that are unparalleled in financial services, or almost any other sector.

“Mortgage brokers now write two out of every three new home loans in Australia, making us a systemically important industry providing access to credit for consumers, and maintains competition in the home lending market. As such, we understand the need for oversight of our industry.

“However, scrutiny should be based on issues supported by real, independent evidence. In the context of strong industry data and the success of the Government’s legislative reforms, including the unrivalled Best Interests Duty, we strongly endorse the Assistant Treasurer’s announcement that a further review of mortgage broker remuneration is no longer required.”

Since 2019, the industry has grown from strength to strength as consumers continue to vote with their feet, resulting in the mortgage broking industry’s market share growing to a record 66.9 per cent of all new residential home loans.

“Today, we are talking about an entirely different industry from the one that faced an ASIC Remuneration Review in 2016. Our industry has risen to the challenge and has grown as a force for good that supports critical competition,” Mr Felton said.

“The work we have done alongside Government has driven trust and confidence in mortgage broking by fully aligning interests and expectations of consumers and brokers, which is clearly reflected in the fact that two in three home loans are now originated through a mortgage broker.

“Over the coming months and years, we’ll continue to build on our position as an industry that plays a critical role in driving competition, choice and access to credit for Australians in the home lending market.”

Background to the broker remuneration review

The final report for the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry recommended that “changes in brokers’ remuneration should be made over a period of two or three years, by first prohibiting lenders from paying trail commission to mortgage brokers in respect of new loans, then prohibiting lenders from paying other commissions to mortgage brokers”.

In its official response to the royal commission in 2019, the Labor Party had originally proposed banning trail commissions paid to mortgage brokers and capping upfront commissions at 1.1 per cent. However, both sides of the political spectrum have confirmed that they would not be looking to change broker remuneration, after Labor MP Stephen Jones told The Adviser last month that his party would not seek to change it.

The move came after widespread engagement from members of industry – including associations, aggregators, brokerages, brokers and even lenders (particularly those dependent on brokers for distribution).

The latest move puts to bed the uncertainty caused by the royal commission recommendation in 2019.

More industry reaction to come. 

[Related: ‘We are not going to change it’: Shadow minister for financial services on broker remuneration’