Royal Commission News

With the Royal Commission recommendations being released on Monday 4th February 2019, the Managing Director of the FBAA has been busy representing it’s members regarding the outcomes and how they will affect the industry.

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Royal Commission Final Report – Recommendations in Brief

The FBAA and in particular our Managing Director, Peter White, continues to engage with the current Federal Government, Opposition and other key stakeholders as we consider the following summary of recommendation from the Final Royal Commission Report.  It’s vitally important to note that these changes could 1) reduce consumer choice, 2) limit availability to credit, 3) reduce market competition, 4) make it significantly more expensive for individuals to get a loan and 5) have a very negative impact on around 20,000 small business operators in our sector (brokers) and the approximately 27,100 FTEs they employ.

FBAA will advocate against the below proposed recommendations.

UPFRONT COMMISSION

Commissioner Recommendations

  • The borrower (and not lender) should pay the mortgage broker a fee for acting on behalf of the borrow in the facilitation of a home loan.
  • Lenders will be prohibited from paying trail within 12 to 18 months (after trail has been abolished on new loans)
  • The Commission has stated that value-based commissions can influence the choice of mortgage, the amount to be borrowed and the terms on which the amount is borrowed.
  • The market will determine what the broker customer fee will be, possible by a Treasury-led working group.
  • A fee charged by the bank or by the broker should be included in the loan process

 Government Response

  • The value of upfront commissions to be linked to the amount drawn-down by borrowers and not the actual loan amount (to commence from 1st July 2020).
  • Campaign and volume‑based commissions payments to be banned as well as commissions will be required to be clawed back from aggregators and brokers over a 2-year period and costs will be passed on to the consumer.
  • The Government will also ask the Council of Financial Regulators and Australian Competition and Consumer Commission (ACCC), to review in 3 years to assess the impact on the consumer and competition of moving to a borrower pays remuneration structure for mortgage broking, (recommended by the Royal Commission), and any connected changes that should be made to non‑broker facilitated loans.
  • The Australian Competition and Consumer Commission (ACCC) along with the Council of Financial Regulators, will form a Treasury-led group to coordinate a review in three years’ time on the impact of changes and implications for consumer outcomes and competition relating to a borrower-pays remuneration model for mortgage broking.  Also, any associated changes that should be made to non-broker facilitated lending will be reviewed.

TRAIL COMMISSION

Commissioner Recommendations

  • The borrower (and not lender) should pay the mortgage broker a fee for acting on behalf of the borrow in relation to the access and expedition of a home loan.
  • Lenders to be prohibited from paying trail within 12 to 18 month period.
  • Existing trail would stand unaffected.
  • Problems arising from unnecessary ‘switching’ or ‘churning’ of home loans are more effectively addressed by providing for ‘clawback’ of commissions or fees.
  • If commission payments were to remain, the Commissioner would support the recommendation made by the Productivity Commission to prohibit commission clawbacks from being passed on to borrowers.

Government Response

  • Prohibition of trail commissions on new loans to come into effect from 1st July 2020.
  • Campaign and volume‑based commissions payments to be banned as well as commissions will be required to be clawed back from aggregators and brokers over a 2-year period and costs will be passed on to the consumer.

WORKING GROUP

Commissioner Recommendations

  • A Treasury-led working group is being established to monitor and, if necessary, adjust broker remuneration model to achieve a level playing field, in response to market changes.
  • The working group should pay particular attention to:

–  Interest rate changes that have occurred

–  Effect on competition between lenders

–  Effect on competition between lenders and brokers; and

–  Residential mortgage market developments and changes proposed should be re-evaluated.

 Government Response

  • The Australian Competition and Consumer Commission (ACCC) along with the Council of Financial Regulators, will form a Treasury-led group to coordinate a review in three years’ time on the impact of changes and implications for consumer outcomes and competition relating to a borrower-pays remuneration model for mortgage broking.  Also, any associated changes that should be made to non-broker facilitated lending will be reviewed.

BEST INTERESTS DUTY

Commissioner Recommendations

  • The law should be amended to require a best interest duty be introduced, and a breach will be subject to a civil penalty.

Government Response

  • Government supports this. The duty will not change responsible lending obligations for broker-originated loans. The Government agrees, following the implementation of the best interests duty, to further align the regulatory frameworks for mortgage brokers and financial advisers.

MORTGAGE BROKERS AS FINANCIAL ADVISERS

Commissioner Recommendations

  • After a sufficient period of transition, mortgage brokers should be subject to and regulated by the law that applies to entities providing financial product advice to retail clients.

Government Response

  • The Government agrees, following the implementation of the best interests duty, to further align the regulatory frameworks for mortgage brokers and financial advisers.

MISCONDUCT

Commissioner Recommendations

  • ACL holders should be bound by information-sharing and reporting obligations similar to those for financial advisers and take the same steps in response to detecting misconduct of a mortgage broker as those for financial advisers.
  • When an aggregator or lender detects that a broker has engaged in misconduct in relation to a particular loan, it should always investigate further and take steps to assess whether the broker may have acted poorly in respect of other loans.
  • Aggregators and lenders identifying misconduct by a broker should make whatever inquiries are reasonably necessary to determine the full extent of the broker’s conduct.

Government Response

  • Government will require all AFSL/ACL holders to make all inquiries reasonably necessary to determine the nature and full extent of an adviser’s misconduct (when the licensee detects misconduct) and inform and remediate affected clients promptly. It is essential that where misconduct is identified, the perpetrators of such misconduct are disciplined and prevented from simply avoiding consequences by moving from one licensee to another.

REPORTING COMPLIANCE CONCERNS

Commissioner Recommendation

  • All AFSL and ACL holders will be required to report ‘serious compliance concerns’ about individual advisers to ASIC on a quarterly basis.

Government response

  • Will authorise a quarterly reporting requirement.

SMALL BUSINESS

Commission Recommendation

  • The NCCP Act should not be amended to extend its operation to lending to small businesses.

Government response

  • The Government agrees to this recommendation that extending the responsible lending obligations in the NCCP Act would increase the cost of credit for small business and reduce the availability of credit. The Government is committed to ensuring access to affordable credit for all small businesses.

SELF-REPORTING

Commission Recommendation

  • Recommendations that ASIC’s Enforcement Review Taskforce on self-reporting of contraventions be put into effect.

Government response

  • The Government agrees to implement the outstanding ASIC Review recommendations to improve the breach reporting and provide ASIC with powers to give directions to AFSL and ACL holders as per the recommendations of the Review.

POINT OF SALE EXEMPTION

Commission Recommendation

  • Exemption of retail dealers from compliance with the NCCP Act is to be abolished.

Government response

  • Recognises that this change may impact on many businesses and will carefully consider how these reforms are implemented so that a balance is achieved between consumer protection and access to products and services.

Please review the full Government response to the Report here.

22nd March 2019

FBAA Launches Campaign to Protect Consumers

Update from Peter White

The Finance Brokers Association of Australia (FBAA) has stepped up its public campaign to protect the industry and ensure consumers continue to benefit from market competition and lower interest rates.

I have been meeting regularly with senior MPs from all political parties as well as independents, and this has seen some wins since the royal commission final report was handed down in February.

The result is the Morrison Government supports leaving the current remuneration structure unchanged which is fantastic for our industry and more importantly borrowers in Australia, but there is still a long way to go.

We want to maintain the momentum on these issues, so we have launched a public social media campaign to call for everyone to work together so we can stop these misguided recommendations from burning borrowers and brokers and hurting the economy.

‘Don’t Burn Borrowers’ urges brokers and the public to sign the Change.org petition to save the mortgage broking industry and urges supporters to continue to write to their state and federal MPs and candidates ahead of the May election. The campaign is supported by social media advertising and promoted through various channels including thousands of brokers and other small businesses.

As I have previously said, much has changed since the report was handed down with many brokers initially fearing the end of the industry and what that would mean for new borrowers.

Our politicians have made significant changes to their position which we applaud but as we head into an election campaign, brokers will continue to campaign on appropriate commission structures and a best interest duty that works for consumers and is targeted specifically for mortgage brokers.

Brokers also want a positive review of the clawback provision and want certainty rather than another review of brokers commission in three years.

The ‘Don’t Burn Borrowers’ campaign seeks to remind politicians and all stakeholders that this conversation is not solely about brokers or even the survival of the industry – it’s about borrowers and limiting choice, resulting in higher fees and higher interest rates, and that will impact all of us.

The FBAA will continue to engage with decision-makers in Canberra and elsewhere to ensure the best possible outcome for borrowers, brokers and the broader economy after the May election.

As always, as things continue to evolve, we will keep you closely advised and don’t forget to follow my vlogs on my LinkedIn and the FBAA’s Facebook page.

Warm regards.

Pete

14th March 2019

FBAA Royal Commission Update from Peter White

As another week goes by, we have another unexpected, yet significant, development in what has become an often-kicked political football in a pre-election battlefield.

On Tuesday the Coalition announced it had revised its commitment to abolish trail commissions, which was one of the recommendations of the Hayne Report from the banking royal commission.

I cautiously welcomed the announcement for several reasons, not limited to the underlying issue of still holding a question mark over our heads on broker’ long-term commission model which has been deferred for three years for yet another review.

Having said that, the announcement by Treasurer Josh Frydenberg is a fantastic step in the right direction but it won’t end our efforts to see the correct policies in place.

What the announcements, and strong interest in our sector confirm, is something we have all known since the royal commission report was handed down five weeks ago – that Commissioner Hayne just doesn’t get it. He doesn’t understand the broking industry or appreciate the important role we play to ensure competition and give borrowers the best outcome.

I will continue to maintain a strong presence on your behalf in Canberra and will be there in a few weeks for the budget announcement. Prior to yesterday’s announcement I had been working with our political decision-makers on the following priorities:

Trail commissions: Up until Tuesday both sides said they were gone. The Coalition then reversed its decision but Labor has not budged, saying instead that what they give brokers is certainty.

Upfront commissions: While Labor has promised an upfront commission at 1.1 per cent of the loan, we believe that should not include GST and aggregator costs.

Clawbacks: In its proposed form, the clawbacks are unfair and we are lobbying for this to be dramatically changed.

Best interest duty: We will work with government and industry to ensure it is relevant to our sector and will positively impact both the customer and the broker.

Labor now knows that if it doesn’t revise its position on trail commissions, it will open up another point of difference in a political battle over an industry that is supported by most Australians.

There are two games in Canberra – the short term and the long-term. We need to ensure the political climate after the election delivers what we need and we intend to work positively with whoever is in government, and in the upper house, to make this happen.

As things continue to evolve, we will keep you closely advised and don’t forget to follow my vlogs on my LinkedIn and the FBAA’s Facebook page.

Warm Regards,

Pete

12th March 2019

Finance broker body issues cautious welcome of government backdown on trail commissions

The peak body representing Australia’s finance brokers has cautiously welcomed a decision by the Federal Government to backflip on its commitment to abolish trail commissions, which was one of the recommendations of the Hayne report from the banking royal commission.

Managing director of the Finance Brokers Association of Australia (FBAA) Peter White said it was a step in the right direction.

“I applaud the announcement by treasurer Josh Frydenberg but it won’t end our efforts to see the correct polices in place to protect consumers from the greed of the big four banks.

“The Coalition’s announcement to keep trail commissions has been delivered in a pre-election environment so uncertainty remains about how exactly this will work after the election.”

Mr White said the announcement confirms how out of touch Commissioner Hayne is and calls into question the findings of the royal commission.

“Hayne simply didn’t get it but it’s now the case that both sides of politics are now very clear on the importance of mortgage brokers.

“Both the Coalition and Labor recognise that the recommendations of the royal commission would in fact hand power back to the big four banks, which is an absurd result.”

He explained that the FBAA has been meeting regularly with both sides of politics and lobbying strongly on trail commissions, the amount of the proposed upfront commissions and the clawback provisions.

“I look forward to seeing Labor’s response to the Coalition announcement because this now opens up another point of difference in an industry that is supported by most Australians.”

Mr White said the FBAA will ask for the fine print of exactly what is proposed by both sides of politics to ensure that competition is enhanced, consumers are protected and brokers continue to offer a valuable service to borrowers.

“We don’t know who will be in power after the next election or how the upper house will work but we will continue to make every effort to ensure brokers continue to have a viable industry and borrowers are not squeezed by the big banks,” Mr White said.

24th February 2019

The FBAA’s managing director Peter White has welcomed Labor’s statement on reforms for mortgage brokers saying it will ease some of the mental health duress being felt by brokers throughout the nation.

“This announcement provides some much-needed clarity for brokers moving forward, while also ensuring transparency on commissions.

“We will continue dialogue with both sides of politics to further shape the end model so that the borrower wins and competition in the market is maintained.

“Labor’s decision to scrap trail commissions and standardise commissions at a fixed percentage of loan size is positive but there needs to be more work done around clawbacks.

“There needs to be some protective mechanism in place, and that will be one of the key issues for us moving forward.”

Mr White said the government and Labor were aligned in many of their responses to the royal commission but not all.

“Both sides of politics should be congratulated for their willingness to listen to the industry but those talks are not over yet,” Mr White said.

15th February 2019

Bendigo Bank urged to look in the mirror before throwing stones at brokers  FBAA website

Summary: Peter White tells Bendigo Bank to ‘focus on your own performance instead of attacking brokers’

13th February 2019

FBAA fights to keep members from falling victim  mpamagazine.com.au

Summary: In the midst of all the talk and reaction brought by the Royal Commission’s recommendation to replace commissions with fees, FBAA managing director Peter White encourages the industry to pause for a moment and evaluate what needs to be done.

12th February 2019

How likely are interest rates to rise post-Royal Commission? yourmortgage.com.au

Summary: The Royal Commission’s recommendations concerning broker commissions could result in dire consequences that will ultimately fall on borrowers, some industry experts say.

11th February 2019

Home loan interest rates could go up if mortgage broker commissions are axed Canstar.com.au

Summary: Banning mortgage broker commissions could lead to less competition and higher home loan interest rates for borrowers, industry groups have warned.

6th February 2019

Interview about royal commission report ABC Radio Brisbane Drive

 Mortgage brokers accused of ‘scaremongering’ over banking inquiry’s commission ban News.com.au

Summary: Mortgage brokers say first homebuyers could be forced to pay thousands of dollars in upfront fees, but critics have slammed the “scare campaign”.

Brokers return fire over trailing commissions plan The Australian

Summary: Mortgage brokers warned against a “kneejerk” reaction by investors as their share prices were smashed by as much as a third over recommendations to ban trailing commissions paid by lenders and potentially shift the cost to borrowers.

 “I have kids”: Mortgage brokers could lose 75% of income as royal commission reality sets in Smart Company

Summary: Independent mortgage brokers say they will be driven out of business by an impending overhaul of their industry sparked by banking royal commission recommendations.

Tasmanian customer-owned Bank of us fears changes to mortgage lending could harm smaller players

The Examiner

Summary: Tasmanian customer-owned Bank of us echoed concerns from mortgage brokers about impending changes to the industry in the aftermath of the banking royal commission.

Bank shares ride out royal commission report InvestorDaily

Summary: The big banks share prices have successfully ridden out the royal commission final report but the same could not be said for all parts of the financial services industry.

Royal commission into banking turns finance industry on its head Dynamic Business

Summary: The findings of the Royal Commission into the banking and financial services sector is expected to turn the finance industry on its head with fears of interest rate rises following a ban on broker commissions.

5th February 2019

 ‘Interest rates are going to go up’: Mortgage broker fury at banking inquiry’s commission crackdown News.com.au

Summary: The mortgage broker industry has reacted with fury to the release of the banking inquiry’s final report, warning that a sweeping ban on commissions could “ruin” many small businesses and lead to borrowers paying higher interest rates.

Interview about royal commission report ABC Radio Adelaide Breakfast

Tom Elliott: The Banking Royal Commission report has got one thing very wrong 3AW

Summary: Tom Elliott says the Banking Royal Commission report could have devastating ramifications for an innocent party, while the big banks effectively get off scot-free.

Drive with Tom Elliott 3AW

Banks pledge change but brokers suffer Nine (AAP)

Summary: Investors have given their initial verdict on the findings of the royal commission, driving the financial sector to what looks like being its best day in more than two years.

Story about royal commission report 10 News

Interview about royal commission report ABC Radio PM

Customers offered faster change in political fight over bank scandals Sydney Morning Herald

Summary: Labor will fast-track a key finding of the Hayne royal commission to scrap “grandfathered” fees paid to financial planners in a challenge to the Morrison government to act more quickly on the scathing report.

Interview about royal commission report

ABC Radio News (played throughout the day)

Banks pledge change but brokers suffer SBS

Summary: Investors have given their initial verdict on the findings of the royal commission, driving the financial sector to what looks like being its best day in more than two years.

Superannuation and home loan sectors likely to be dramatically overhauled after Banking Royal Commission

Nine

Summary: The superannuation and home loan sectors are likely to be dramatically overhauled after a damning report from the banking royal commission.

Banking royal commission: Pain for the banks? Not likely as finance stocks skyrocket The West (AAP)

Summary: Investors have given their initial verdict on the findings of the banking royal commission, driving the financial sector to what looks like being its best day in more than two years.

Story about royal commission 9 News

Hayne’s prescription for ending banking rip-offs Indaily

Summary: Banking royal commissioner Kenneth Hayne QC wants wide-ranging reforms to stop the widespread misconduct that has caused substantial loss to customers while delivering hefty profits to the banks.

Markets reward banks after royal commission shellacking Indaily

Summary: Finance Brokers Association of Australia managing director Peter White warned borrowing costs would increase if Commissioner Hayne’s recommendation that trailing commissions be dumped is accepted.

‘Bastards’: Mortgage broker fury at report Gatton Star

Summary: The mortgage broker industry has reacted with fury to the release of the banking inquiry’s final report, warning that a sweeping ban on commissions could “ruin” many small businesses and lead to borrowers paying higher interest rates.

 ‘Bastards’: Mortgage broker fury at report CQ News

Banks pledge change but brokers suffer The Bull (AAP)

Summary: Investors have given their initial verdict on the findings of the royal commission, driving the financial sector to what looks like being its best day in more than two years.

All eyes on bank stocks after Hayne report Herald Sun (AAP)

Summary: Banks benefit from mortgage broker changes

All eyes on bank stocks after Hayne report Daily Mail (AAP)

Home buyers face fees from broker pay move Nine (AAP)

Summary: Home buyers may have to pay their bank a fee when they take out a loan as a move to a borrower-pays system hits mortgage brokers.

Broker changes tipped to benefit big banks Nine (AAP)

Summary: Moving to a borrower-pays system for mortgage brokers is expected to increase the power of the big banks who some analysts believe have already enjoyed a clear win from the banking royal commission’s final report.

Broker changes tipped to benefit big banks Western Advocate (AAP)

Broker changes tipped to benefit big banks The Islander (AAP)

Broker changes tipped to benefit big banks Katherine Times (AAP)

Broker changes tipped to benefit big banks The Standard (AAP)

Banking royal commission responses News.com.au (AAP)

Summary: What Australia’s major financial institutions are saying in response to Kenneth Hayne’s royal commission final report.

Banking royal commission responses Daily Mail (AAP)

Bill Shorten demands extra sitting weeks to fast-track banking reforms The Guardian

Summary: Labor leader says failure to act will show Coalition ‘putting the interests of the big banks’ first

Battle looms over mortgage broker commissions Banking Day

Summary: The call for a reshaping of mortgage broking industry remuneration is the flashpoint of the Hayne royal commission report, with Labor giving in-principle support to all the recommendations while the Treasurer says a ‘fee for service’ model for the industry would hurt competition.

Banking royal commission: mortgage brokers fuming at loss of trailing commissions Update NewZ

Summary: “We are certainly extremely disappointed with that outcome,” said Peter White, CEO of the Finance Brokers Association of Australia.

Aussie Royal Commission’s final report lashes sales incentives & ex-BNZ boss Andrew Thorburn, brings bad news for mortgage brokers  Interest

Summary: The Financial Markets Authority (FMA) will be emboldened by the Australian Royal Commission’s final report in its quest to rid New Zealand’s financial services sector of sales incentives.

4th February 2019

Money news with Ross Greenwood 2GB

Hayne verdict LIVE: Banks, insurers referred over potential misconduct Sydney Morning Herald

Summary: Brokers warn findings will drive up interest rates

Banking royal commission: Mortgage brokers fuming at loss of trailing commissions Australian Financial Review

Summary: Mortgage brokers are fuming about the government’s move to kill trailing commissions, warning this could cause upfront commissions to rise and put pressure on the cost of loans.

Banking royal commission: Industry reacts to the final report Australian Financial Review

Summary: Bankers and big business leaders have acknowledged the need to improve conduct in the finance industry following the royal commission’s final report, but mortgage brokers and the property sector warned cracking down on brokers could restrict credit flow.

Banking royal commission live: Hayne final report The Australian

Summary: Brokers deeply unhappy

Mixed reaction to the banks report SBS (AAP)

Summary: There has been mixed reaction from stakeholders after the banking royal commission’s scathing final report was handed down.

Royal Banking Commission findings: Mortgage brokers fuming Herald Sun

Summary: The mortgage broking industry is livid they are the biggest scalp of the Royal Commission, with many uncertain if they will survive.

How much would you pay upfront for a mortgage broker? Sydney Morning Herald

Summary: Customers would be forced to pay mortgage brokers fees for their services, under recommendations for a radical shake-up to the broking industry from the royal commission into financial misconduct.

Home loans will cost more owing to royal commission finding, say mortgage brokers The Advertiser

Summary: Australia’s mortgage broking industry has savaged the final report from the banking royal commission, saying a move to dramatically overhaul how brokers are paid will make loans more •expensive by entrenching the power of major lenders.

Banking Royal Commission: What do the findings mean for you? Yahoo Finance

Summary: The final report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry has been handed down – and it contains a whopping 76 recommendations across three volumes totalling 1,133 pages.

Mortgage brokers are furious about the Hayne royal commission findings and say it could ‘destroy 20,000 small businesses’

Business Insider Australia

Summary: Australia’s mortgage broking industry looks set to be upended if policy follows through on some of the key recommendations of the Hayne royal commission, including a complete ban on trail commissions and, eventually, a ban on all commissions to brokers.

Banking royal commission: Mortgage brokers – how much would you pay up front? F3 Nws

Summary: Meanwhile, the commission said there was not a case for changing responsible lending laws – one of the most closely-watched issues in financial markets.

Final Report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry

The Final Report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry was presented to the Governor-General on Friday 1 February 2019.

On Monday 4 February 2019 the Hon Josh Frydenberg released the Government’s Response to the Royal Commission.


 

FBAA Broker Marketing Material

In the second-half of 2018, the FBAA engaged an independent research company to survey just how satisfied home loan customers are with FBAA brokers. More than 2,000 borrowers were surveyed, and the results are impressive. And they’re yours to use in the fight against static competition and rising interest rates. New marketing material available monthly.

Download Here


 

Broker Letter to MPs

Download this letter, which we need you to modify and customise and send to your local federal MP and all candidates in your area for the upcoming election.

We must ensure that this issue is front and centre during the election campaign and that our industry secures their support.


 

Petition

Get behind FBAA in the fight against static competition and rising interest rates.

Sign the petition at  https://www.change.org/p/federal-treasurer-josh-frydenberg-save-the-mortgage-broking-industry

National Office

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Phone: 07 3847 8119 Email: info@fbaa.com.au

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