The Combined Industry Forum is mulling over the sanctions that could be introduced in the event that brokers are found to have breached the mortgage broking industry code of conduct.
While the mortgage broking industry code is still in the process of being drafted by the Combined Industry Forum (CIF), sanctions will be introduced for those found to have violated the code, members of the CIF have indicated.
Speaking at a CIF event in Melbourne on Monday (10 September), the CEO of the Mortgage & Finance Association of Australia (MFAA), Mike Felton, suggested that there was a likelihood the code could be enforced by broking industry associations — similar to the way the Australian Banking Association (ABA) monitors the banks’ adherence to the Code of Banking Practice.
“We still have to decide what those sanctions for enforcement will be, but there will be a degree of alignment between the associations and their disciplinary procedures and tribunals that exist,” Mr Felton said.
“[What] we have to be talking about it at the moment — in fact, that work started in June — [is] how does the industry code interact with the associations [and] where does the monitoring and the disciplinary process occur? But, yes, most definitely there will be enforcement, there will be sanctions and they will probably happen within the associations.
“We just need to decide what those are and how they differ to what is already within the industry," he said.
The CIF stated in its progress report that it is assessing appropriate enforcement and oversight mechanisms, as well as ways for CIF members to respond in cases where the mortgage broking industry code of conduct has been breached.
“It’s one thing deciding on a set of remuneration and disclosure reforms; it’s another thing coming up with a strong governance framework that is self-assessing, self-correcting and continually improving,” Mr Felton said.
Thus far, there are nine components to the governance framework that the CIF is developing, the MFAA chief executive noted, which include the assignment of unique identifiers to brokers that can help track their activities, identifying key indicators of risky behaviour within the data that is captured in the industry, and standardising annual reviews of the compliance governance frameworks of aggregators and brokerages.
“A big part of governance is monitoring, and that starts off with data-based monitoring coming out of the key risk indicators, and then customer feedback and shadow shopping — all forms of monitoring of our industry that will point to outcomes, outcomes that potentially require further investigation,” Mr Felton said.
“Where there has been wrongdoing, you’ll have remediation in the form of education and training, reporting back to both the aggregator and the lender and ongoing review of the brokers to ensure that there was follow-through on that remediation and an improvement in behaviour going forward.”
The MFAA CEO said that there will also be a register and a reference-checking protocol for monitoring the movements of brokers between aggregators, brokerages and lenders, as well as for tracking loans through the broker’s unique identifier.
Mr Felton added that the roll-out of the unique identifiers is intended to be complete by the end of 2020.
At present, the six key risk indicators that will be applied to the data are percentage of owner-occupied and interest-only loans, 90-day-plus arrears on loans originated within the last 12 months, switching lenders in the first 12 months, elevated level of customer complaints relative to industry, post-settlement surveys relative to industry, and deficiencies found in requirements and objectives documentation.
Given the lack of data on the mortgage broking industry, a widely held view, the MFAA CEO said that initially lenders’ data will provide direction around governance efforts and resources.
Mr Felton noted: “Just because a broker triggers a flag doesn’t mean there’'s been a poor outcome. It simply means here’s an area we need to look at in more detail. There could be good reasons — based on demographic or geography — as to why a flag may have been triggered.”