The MFAA previously expressed broad support for the key policy recommendations made in ASIC's report on its Review of Mortgage Broker Remuneration, released in March following more than 12 months of industry consultation and research. ASIC has recommended that the framework for the industry's incentive structure should largely be left in place.
Overall, the MFAA was pleased to note that the ABA Review has concluded that "neither ASIC nor this Review has found compelling evidence of systemic harm." The MFAA and the ABA are aligned in their pursuit of a sustainable industry, with a balanced, fair and equitable approach to regulatory issues and consumer outcomes.
However, MFAA CEO Mike Felton said today that, while the ABA Review made a number of observations and recommendations regarding the third party channel, it did not present realistic solutions.
"This is a review commissioned by the banks that aims to deal with the banks' reputational problems, but as far as the broker channel is concerned does not create better consumer outcomes," Mr Felton said.
"We are frustrated that this Review claims to be focused on a 'customer–centric' view. Brokers and aggregators already have a customer-centric view. Indeed, they are dependent on a relationship model and must focus on their customers in order to survive.
"The Review's recommendations on the third-party channel appear to be based mostly on anecdotal evidence from its members. It is unfortunate that the Review process did not include meaningful consultation with the broader industry in developing this report.
"For example, there is no evidence provided in the ABA Review that links consumer detriment to the current remuneration structure. This lack of poor customer outcomes has likely driven ASIC's recommendation to leave the current commission structures in place, with a view to reviewing them again in four years to determine if consumer outcomes were affected by the potential conflicts identified by its Report.
"This was supported by comments made by ASIC Chairman Greg Medcraft after the Report's release, in which he said that brokers deliver great consumer outcomes, and that lenders are still responsible for lending.
"In fact, while the ABA Review assumes consumer detriment as a result of anecdotal evidence, our data demonstrates that consumers are very happy with their brokers. The industry grew by four percent in 2016, and 92 percent of consumers reported they were 'satisfied' or 'very satisfied' with their broker's performance, according to a 2015 Ernst & Young study. The data shows default and other metrics are closely aligned with outcomes driven by lenders' staff," Mr Felton said.
Despite this lack of evidence of poor consumer outcomes, the ABA Review recommends changes that go significantly beyond those recommended by the ASIC report, seeking to adjust or remove current incentives for mortgage brokers and potentially implement a lender fee-for-service approach.
"The ASIC Report does not recommend removing the link between loan size and commission, nor a fee-for-service model nor removal of trail commission - with good reason. A single, lender-funded, fee for service is likely to lead to a degree of standardisation of all fees, which ASIC is not calling for. It may also be considered anti-competitive by the ACCC, and therefore would not be able to be implemented. Ultimately, ASIC concluded these actions are not required because they do not create better consumer outcomes," Mr Felton said.
"The ABA Review in essence recommends a consolidation of power to lenders, giving them complete oversight of mortgage brokers. This would lead to a reduction in independence, would do little to enhance competition and tip an already precarious power balance further towards the Big Four and away from consumers' interests."
Mr Felton said he believed the Review sought to re-interpret the ASIC report, providing unnecessary solutions to issues that ASIC had already reviewed and put aside. The MFAA reiterated its call for all stakeholders to wait until June - and to review industry responses to Government on the ASIC review and the proposals that come out of that - before any unilateral action is taken.
"What really matters, in terms of remuneration, is the ASIC process and the regulatory outcomes from it. ASIC's approach is considered and well-informed, and is based on extensive data and consultation with all parties," he said.
"The Review's recommendation that incentives be aligned across all channels does not account for the fact that licensed mortgage brokers and credit representatives are credit advisers, whereas bank staff selling home loans are salespeople - for a limited product range. If there is to be an alignment of remuneration across all channels, there would need to be an alignment of regulations across all channels.
"ASIC's process had been well-informed and consultative. We have been working closely with ASIC to represent the industry on behalf of our 12,900 members, and we appreciate the level of consultation with industry to understand its complexities and the value that mortgage brokers bring to consumers, and to the Australian economy.
"We believe ASIC understands that brokers drive competition and provide a critical service to consumers that combines choice, expertise and convenience, to help them make informed choices and get an appropriate deal. Brokers rely entirely on referral and customer relationships in building their businesses, and are incentivised in a number of different ways that drive good consumer outcomes.
"The MFAA is supportive of increased transparency and clarity on regulations in the service of better consumer outcomes – this can only continue to strengthen the sustainability of our industry. We also believe that any action to adjust current remuneration structures needs to continue to be made with the consultation and understanding of all participants within the value chain.
"We have advocated strongly on these and a range of other issues, and we will continue to consult with our membership and present the industry's view as the Government begins to formulate its policy recommendations," Mr Felton added.
The MFAA is currently consulting with its members, including mortgage brokers, aggregators, lenders, mortgage managers, and insurers before beginning the process of consulting with Government on the formulation of policy.