ASIC commenced a review, at the request of the Government (November 2015), to examine the mortgage broking market to determine the effect of current remuneration structures on the quality of consumer outcomes.
The Government will consider the findings as a first step prior to any consideration of any change in remuneration structures for the mortgage broking industry.
According to ASIC, the scope of the review included:
Participants: All industry participants forming part of the value distribution chain, including lending institutions, aggregators and brokers and referral and introducer businesses.
Products: Associated with the sale of residential mortgage products only.
Remuneration structures: Including non-monetary benefits, that relate to the distribution of home lending products present throughout the value chain between lenders, aggregators, brokers and referrers and introducers.
Consumer outcomes: Being multifaceted, and comprising of, but not limited to, factors such as price, product accessibility, product features and loan performance.
As well as channels, ownership structures, sample size and data will be reviewed.
Read the scope here.
Having conducted their review, ASIC published Report 516 Review of mortgage broker remuneration in March 2017 that set out findings; and in light of these findings, also set out a series of proposals designed to improve consumer and market outcomes.
These proposals would be subject to consultation with stakeholders.
Report 516 identified the importance of the broker channel.
"Brokers play a very important role in the home loan market. They are responsible for arranging around half of all home loans in Australia. Consumers are increasingly turning to brokers to get help in obtaining a home loan…"
"Brokers can play an important role in promoting good consumer outcomes and strong competition in the home loan market."
Report 516 made six proposals to improve consumer outcomes and competition in the home loan market, including:
(a) changing the standard commission model to reduce the risk of poor consumer outcomes;
(b) moving away from bonus commissions and bonus payments, which increase the risk of poor consumer outcomes;
(c) moving away from soft dollar benefits, which increase the risk of poor consumer outcomes and can undermine competition;
(d) clearer disclosure of ownership structures within the home loan market to improve competition;
(e) establishing a new public reporting regime of consumer outcomes and competition in the home loan market; and
(f) improving the oversight of brokers by lenders and aggregators.
The MFAA made a submission in response to ASIC Report 516 which included input from all key member groups and can be viewed here, and which formed a roadmap for a number of the key Combined Industry Forum streams.
In response to ASIC's remuneration review and Report 516, the mortgage broking industry established the Combined Industry Forum to drive better customer outcomes through improved governance and remuneration practices in mortgage broking.
Read more on the Combined Industry Forum here.