Uncertainty about the future of commissions is on the rise following a decision by the banks to launch their own remuneration review.
The Australian Bankers’ Association (ABA) last week announced that lenders will begin to implement comprehensive new measures to protect consumer interests, increase transparency and accountability, and build trust and confidence in banks.
ABA chief executive Steven Munchenberg said the industry has appointed Gina Cass-Gottlieb, of Gilbert + Tobin Lawyers, to lead the work on establishing the governance arrangements around the implementation of the plan, review process, public reporting and the selection of an independent expert to oversee implementation of this initiative.
“The banks also support the federal government’s review of the Financial Ombudsman Service, who is the independent umpire for customer complaints, to ensure it has the power and scope required to deal with a variety of issues that currently fall outside its thresholds,” Mr Munchenberg said.
Mr Munchenberg outlined a six-point plan in an effort to lift standards and transparency across the banking and financial services sector, and bolster the existing strength of the regulatory framework.
The first of these initiatives is a review of product sales commissions.
On Friday, the MFAA responded to the ABA’s actions, clarifying that a review into product commissions by the banks will also cover third parties. It will be separate from ASIC’s ongoing investigation into broker remuneration.
“The MFAA notes the ABA’s public statement that while the review will cover third parties, but will not seek to duplicate the existing ASIC inquiry into mortgage broking remuneration,” the MFAA said in a statement.
“The MFAA is working closely with ASIC on their inquiry into the third-party channel and that the purpose of this new focus is on the broader banking sector services offering.”
Mortgage brokers will effectively cop a double whammy review into commissions if the separate review covers third parties, as the MFAA suggests.
The ABA stated that it will “immediately establish an independent review of product sales commissions and product-based payments with a view to removing or changing them where they could lead to poor customer outcomes.”
“We intend to strengthen the alignment of remuneration and incentives and customer outcomes. We will work with regulators to implement changes and, where necessary, seek regulatory approval and legislative reform,” it said.
“Each bank commits to ensure it has overarching principles on remuneration and incentives to support good customer outcomes and sound banking practices.”
Yesterday, the Australian Financial Review reported that Westpac has already commenced a review into broker commissions.
According to the newspaper, Westpac's Tony MacRae and St George's Malcolm Withers have written to mortgage aggregators, warning commissions are the first of six matters being reviewed.
“We want to emphasise that the intention is not to reduce our overall payments to third parties but to ensure they are aligned to good consumer outcomes,” the bankers reportedly wrote.
“The changes will also be subject to regulatory approval following the completion of the review.”
Westpac declined to comment in the AFR article.
The Adviser can confirm that the major bank wrote to broker groups alerting them of the ABA’s actions.
James Mitchell has over eight years’ experience as a financial reporter and is the editor of Wealth and Wellness at Momentum Media.
He has a sound pedigree to cover the business of mortgages and the converging financial services sector having reported for leading finance titles InvestorDaily, InvestorWeekly, Accountants Daily, ifa, Mortgage Business, Residential Property Manager, Real Estate Business, SMSF Adviser, Smart Property Investment, and The Adviser.
He has also been published in The Daily Telegraph and contributed online to FST Media and Mergermarket, part of the Financial Times Group.
James holds a BA (Hons) in English Literature and an MA in Journalism.
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