A major aggregator has asked the financial services regulator to “keep a watchful eye on the big banks” to ensure they do not use the new bank levy to bring in changes that “reduce the financial viability of providing broking services”.
In the government’s budget, released earlier this month, it was announced that the banks with liabilities of at least $100 billion (i.e. the five major banks) will have to pay a quarterly 0.015 per cent levy on their licensed entity liabilities, including corporate bonds and certificates of deposit.
While the Treasurer said that customer deposits of less than $250,000 and additional capital requirements imposed on the banks by regulatory authorities are excluded from their assessed liabilities” and added that “unlike the previous bank deposit tax, this is specifically not a levy on pensioners’ and others’ ordinary deposit accounts, nor is it on home loans” – the banks have come out stating that any such levy would ultimately impact borrowers.
AFG has announced that it is now seeking assurances that the regulators ensure that the banks do not use the levy as a “justification to implement changes designed to reduce the financial viability of providing broking services and marginalise large portions of the lending sector, leaving them without a distribution network”.
Interim CEO David Bailey welcomed the fact that the government was “seeking to level the playing field” by introducing the new bank levy, but warned that “history suggests the big banks will undoubtedly pass this new cost on”.
He said: “The extent to which they are able to pass this levy on will depend on how strong our regulators are with the new supervisory powers also announced on budget night.”
Mr Bailey welcomed the news that the Australian Competition and Consumer Commission (ACCC) is to look into mortgage pricing and the Productivity Commission will be conducting an inquiry into competition in the sector, and said that the aggregator would be emphasising to the relevant bodies that “a viable mortgage broking market is crucial for retaining competitive pressure”.
He noted that ASIC’s recent remuneration review’s “overriding conclusion was that brokers are good for competition and as such have delivered good consumer outcomes”.
Mr Bailey continued: “It is incumbent upon the industry as a whole to respond to the regulatory process … Tweaks are needed, not wholesale change; we would urge the regulators and government to ensure the ASIC review is not used as a lever to drive an even better outcome for the big banks.”
“A significant change to the broker remuneration model impacts the ability of the broking industry to survive which means the non-major lenders, who rely on the broker channel to distribute their products across the Australian market, become compromised,” said Mr Bailey.
“This means less choice for consumers and higher home loan rates. This is not a good consumer outcome but does provide more strength to the big four banks.”
Banks ‘will have to watch themselves’
Similarly, Mark Haron, director of major aggregation group Connective, told The Adviser: "The government, particularly Scott Morrison, is forming an internal team within the ACCC to keep an eye on banks in respect to interest rate changes, and no doubt this same team of people would take significant interest in any unilateral and seemingly cartel behaviour of banks changing commissions to brokers.
“They will have to watch themselves. They can’t be seen to be operating outside of the remit of what the regulators want to see.”
He added that the ASIC remuneration review’s main focus is “clearly talking about the fact that they are fundamentally happy with the upfront and trail commission structure, with some minor revisions of it, specifically, around upfront commissions not being purely on loan size.”
Touching on the recent UBS note that caused outrage within the industry, Mr Haron reiterated that what the authors were “asserting in terms of significant and sweeping changes needing to be made”, were not what ASIC was saying in the report.
He said: “One of the things that ASIC recognised was the value of competition that brokers bring to the home loan market. I would also strongly disagree [with the UBS note] that brokers add an average of 16 basis points to a home loan. Brokers have (through the competitive nature of how they work with a number of different lenders) driven the average cost of a home loan down.”
The Connective director said that there was also anecdotal evidence of customers getting cheaper rates through brokers due to the discounts that brokers will often negotiate with the banks.
“A cynic would think that [the UBS note] is a PR puff piece to try and drive a sentiment against brokers, pre-emptive of a bank potentially making changes on commission.
“But my view to date, having had conversations with a number of different banks, is that many banks do not want to change the economics of broker commissions. They are all willing to work within the framework of the ASIC remuneration review to ensure that the way brokers are paid commission reflects other components other than just loan size.”
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