The MFAA has today made its submission to Treasury in response to the ASIC Review of Broker Remuneration Report, following extensive consultation across the mortgage and finance industry. The submission reflects the industry's response to the recommendations made by ASIC, including early thinking on a number of detailed, realistic solutions, and how the industry will approach self-regulation.
The MFAA's submission focuses on six key recommendations raised in the Report, which were identified by ASIC as issues that must be addressed in order to reduce the potential for conflicts of interest.
MFAA CEO Mike Felton said that this process would be the industry's only opportunity to demonstrate its capacity for self-regulation and the MFAA's response was strongly focused on enhancing consumer outcomes, and on remuneration structures that support robust competition.
"We must provide real solutions, and improve transparency and disclosure. The time to prosecute these issues with ASIC has passed, and avoiding them is simply not an option. If we are to enhance consumer outcomes throughout the mortgage and finance value chain with minimum disruption for our members, we must embrace change voluntarily," Mr Felton said.
"ASIC has conducted a well-informed review, has stated publicly that brokers drive positive consumer outcomes and contribute to industry competition, and has called upon the industry to self-regulate. However, that is not an invitation to conduct business as usual, it is a window of opportunity to implement meaningful change.
"While there was no evidence in ASIC's Report that current structures decrease competition or lead to poor consumer outcomes, it did show that conflicts of interest existed and issued a call to action for the industry to make changes. The MFAA believes that these conflicts must be addressed head-on, to ensure that we continue to drive consumer trust and confidence and the sustainability of our industry," Mr Felton said.
The MFAA's submission outlines the industry's views on a range of potential solutions to the ASIC recommendations, including proposed changes to remuneration structures and a framework by which they can be assessed.
The MFAA is aligned with ASIC's view that the current model should not be abandoned, but must be improved and reviewed again in three to four years' time. However, further work is required to understand the potential unintended consequences of possible changes, and to ensure they do not undermine competition.
In developing these recommendations, the MFAA convened a number of member forums to gather feedback and data, including the MFAA National Lenders Forum, the MFAA National Aggregators Forum, the Joint MFAA Steering Group and Broker Roundtables held in each capital city and regional locations.
The MFAA has also collaborated with the Australian Bankers' Association to take a joint leading role in establishing an industry-wide working group that will oversee and coordinate the industry self-regulation going forward, ensuring there is strong dialogue and common purpose between all key industry participants.
The MFAA has proposed a range of potential solutions to the six proposals recommended by ASIC, including specific structural changes to remuneration practices that could be used to improve the standard commission model, to protect against what ASIC has named 'product strategy' conflict and 'lender choice' conflict'.
However, Mr Felton noted that while changes to remuneration structures are necessary, it was improved governance and oversight aimed at enhancing consumer outcomes and increasing the professionalism of the industry that would underpin successful self-regulation more than any other measure.
"ASIC states in its Report that it expects 'lenders, aggregators and broker businesses to embed the principle of obtaining good consumer outcomes as a guiding factor in the design of their remuneration arrangements', and as part of their efforts to self-regulate," Mr Felton said.
"The MFAA believes the first step is for industry to work with ASIC to collectively define what 'good consumer outcomes' are in this context, and how they can best be measured. Following this, the MFAA recommends a framework that would match remuneration structures with behaviours and consumer outcomes and would use data and risk-based monitoring and oversight to identify potential problems - both in systems and individuals - take remedial action and adjust remuneration as required.
"To support this framework, the MFAA recommends that the industry should develop an enhanced reference checking protocol to better vet brokers as they enter the industry or move between aggregators, as well as a mechanism whereby brokers can be effectively removed from the industry for significant poor conduct.
"Finally, lenders and aggregators will need to be responsible for the monitoring of brokers, using a risk-based approach that draws on both loan and performance data provided by lenders. This will require an agreed performance scorecard which aggregators and lenders can use to assess broker performance against the agreed 'good consumer outcomes'," Mr Felton said.
This framework will eventually create a virtuous circle of self-regulation for the industry, through data-based self-assessment, self-correction and continual improvement to remuneration structures.
"This is our opportunity to bring the industry together to meaningfully create the potential for better consumer outcomes, to demonstrate to ASIC and Treasury that we are serious about self-regulation, and serious about change. I believe we can continue to grow a sustainable, fair and equitable system, and this process is a great start to the consultation process with Treasury," Mr Felton said.