AFG response to the Interim Report of the Royal Commission into Misconduct in the Banking, Superannuation and the Financial Services Industry
Last Friday AFG provided our response to the Royal Commission’s Interim Report.
We are of the view that the erosion of public confidence in the major banks and their failure to meet community expectations is inextricably linked to the immense market power that they wield.
We have told the commission the competitive tension delivered by a viable mortgage broking channel is vital to help limit oligopoly behaviour in an industry that is dominated by the four major banks. The clear majority of mortgage brokers are small business operators with customer service at their core. Without the delivery of good consumer outcomes, you would not have sustainable businesses and broker market share would not have grown to record levels.
The Commissioner questions the remuneration structure of the industry, levels of disclosure and in whose interest brokers act. Industry has acknowledged the concerns raised by ASIC after its extensive Broker Remuneration Review, and the Combined Industry Forum (CIF) has developed clear actions to address potential conflicts of interest. Clearer disclosure, a customer first duty and changes already underway to remuneration structure address concerns raised by the Commission. This is consistent with the approach suggested by both Treasury and ASIC and, together with ASIC’s new regulatory powers, needs time to become entrenched.
The Commission has also raised consideration of the extension of FOFA-style regulation for the industry. We contend that the services provided by mortgage brokers have both similarities to and differences from, the services provided by financial advisers.
It is simply not appropriate to replicate the personal financial advice regime and apply it to mortgage brokers without considering the differences and the effect that each component would have on every Australian homebuyer and the Australian economy as a whole.
In examining the remuneration model, it is important to reflect on Treasury’s submission that stated the balance of responsibility and interests must be carefully weighed. A model that is too prescriptive risks being commercially inefficient and having a negative effect on competition.
Such a move would result in the uneven playing field being further skewed towards the major banks and away from efficiency and competition. An outcome that would be celebrated by the large lenders.
AFG will continue to advocate for our industry, competition should not be the inadvertent casualty of reform.
Click here to read our submission