Aussie Home Loans’ response to misconduct by four of its brokers “fell below community standards and expectations”, the financial services royal commission has said in its interim report.
In its interim report, released on Friday (28 September), the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry determined that Aussie Home Loans’ response to misconduct from four of its brokers fell below community standards and expectations.
During the course of the commission’s hearings, Aussie was questioned over its response to fraudulent activity involving four of its contracted brokers between 2011 and 2015.
In her testimony before the commission, Aussie general manager of people and culture Lynda Harris was questioned by the counsel assisting the commission, Rowena Orr QC, who put it to Ms Harris that Aussie had failed to adequately report the identified misconduct to affected clients and relevant authorities.
In his interim report, Commissioner Kenneth Hayne echoed Ms Orr’s view, noting: “Aussie’s responses to being told of, or in one case discovering, misconduct by its credit representatives fell below community standards and expectations.
“The responses fell short in several respects.”
Commissioner Hayne acknowledged Ms Harris’ evidence regarding Aussie’s view that an appropriate investigation had to be undertaken before accusing a broker of misconduct, and therefore before reporting it to the Australian Securities and Investments Commission (ASIC).
However, the commissioner alleged that the brokerage’s response fell below community standards and expectations by failing to report the fraud cases to ASIC and the Mortgage & Finance Association of Australia (MFAA), and by failing to review loans settled by the accused brokers.
“First, there was the failure to report three of the four cases. As Ms Harris was at pains to point out, great care must be taken before saying to a third party that a person is suspected of fraud,” Mr Hayne said.
“But different considerations arise in relation to communications with ASIC as a regulatory body and communications with a professional association having disciplinary functions like the Mortgage & Finance Association of Australia.
“ASIC has statutory responsibilities for the licensing and supervision of credit representatives. The Mortgage & Finance Association of Australia has a legitimate interest in knowing that one of its members has been suspended or had his or her contract of engagement terminated on the ground that the member is suspected of having committed fraud.”
Commissioner Hayne also criticised Aussie for receiving trail commission for loans settled by its brokers embroiled in misconduct.
“Second, there was the failure to look at any settled loan to see whether the broker concerned had engaged in conduct that caused harm to the borrower,” Commissioner Hayne continued.
“Ms Harris’ evidence was that this was a task for the lender, not Aussie. Lenders, she said, were better set up to detect fraud than Aussie.
“But the issue is not only about whether the brokers had committed other acts of fraud; it is about whether borrowers had suffered as a result of the broker’s conduct. And in deciding whether Aussie had any role to play, it is necessary to bear at the forefront of consideration that Aussie did its best to ensure that it continued to receive the trail commission payable in respect of every loan that the defaulting brokers had arranged.”
Commissioner Hayne concluded that, in his determination, the community would “rightly consider” that Aussie’s continued receipt of commissions “entailed commensurate obligations to inquire whether the brokers had caused harm to borrowers”.
Mr Hayne concluded that the steps taken by Aussie, or lack thereof, in discovering misconduct “confirms that there was, and remains, confusion about the roles and responsibilities of lenders and intermediaries”.
“The steps that Aussie took, and did not take, show it did not see itself as owing any obligation to protect the interests of borrowers,” Mr Hayne said.
“Its concern was to protect its income streams. Aussie acted in ways that showed that it considered that if anyone owed an obligation to borrowers, it was the lenders. That is, Aussie’s conduct was consistent with answering the question ‘For whom does the intermediary in a home loan act?’ as ‘The intermediary, no one else’.”
Following the release of the interim report, Aussie CEO James Symond said: “We are in the process of reviewing the report in detail. We will provide a formal response to the royal commission, which will continue to advocate for our industry, our brokers and the important service they provide for Australian home buyers, owners and investors.
“The Aussie team will continue to work closely with the Combined Industry Forum (CIF), the Mortgage & Finance Association of Australia (MFAA), regulators and the federal government to ensure all factors are considered before any action is taken that could harm competition in home lending and impact the positive customer outcomes we know our industry delivers.”
More to come.
[Related: Royal commission releases interim report]
The Member for Fisher says brokers back the bill repealing resp...
The non-bank has reported an 11 per cent growth in new loans writ...
Andre Agassi and Lleyton Hewitt underscored the importance of bus...