Mortgage broking at ‘a juncture in its history’: ASIC

He added that “2018 and 2019 will be remembered as a turning point for the financial services industry as a whole, and the mortgage industry is certainly not immune to this transformation”.

“The mortgage broking industry has come a long way in Australia since it began in the late 1990s,” he said.

“It is now at a juncture in its history, with technology and regulation looking to re-shape the industry significantly in the years ahead,” Mr Saadat told delegates.

Noting that the banking royal commission was brought about largely as a result of the “trust deficit” in banking, superannuation and the financial services industries, he said that the regulator was working hard to reform its powers – with further anticipated reform expected in due course.

As well as this, Mr Saadat highlighted the work that ASIC is undertaking in the credit and lending space, particularly referencing the the new consultation on the update to ASIC’s Regulatory Guide 209 for responsible lending, (which Mr Saadat said would likely take into account “judicial decisions, ASIC enforcement actions, thematic reviews, the financial services royal commission, changes in the law and changes in technology”), reviews of the credit card market and ASIC’s ongoing work on the fintech innovation hub that “helps startups navigate Australia’s financial regulatory system”.

Loan fraud report expected ‘mid year’

He continued to outline the work being undertaken in the lending and mortgage broking space that aims to help provide ASIC with “a better understanding of industry and help [it] effect change across the whole sector”.

The ASIC executive director provided an update on the work the regulator is currently undertaking for its review of loan application fraud, which aims to better understand the type and level of fraud currently faced by industry, and “their practices for preventing, detecting and responding to it”.

Mr Saadat said that ASIC had obtained “significant data from selected lenders and aggregators” as part of this work, with a public report expected “mid-year”.

He said: “We are focused on this issue because the falsification of loan documents by brokers and lender employees can undermine the responsible lending provisions in the National Credit Act and lead to consumer harm where borrowers are given loans they are not able to afford. Loan application fraud can also reduce trust and confidence in the financial sector.

“It’s important to note that in many cases of loan fraud involving brokers or lender staff that are brought to our attention by industry or an industry association, action has already been taken to suspend or terminate the individual’s employment, lender accreditation or aggregation agreement,” he emphasised.

Mr Saadat continued: “In our review, we are obtaining information on the level of suspected fraud identified by industry and the extent of consumer harm, as well as existing industry controls and processes, with a view to promoting best practice across industry and opportunities for improvement at the system level.

“This will ultimately assist us to improve public confidence in controls for preventing, detecting and responding to loan fraud.”

Mortgage Shadow Shop followed 250 mortgagors

Mr Saadat also provided more details of its shadow shopping exercise that aims to “better understand the consumer experience when obtaining a home loan – including loans taken out via a broker and direct from lenders”.

He revealed: “From March to September 2018, we followed approximately 250 actual consumers through their home loan purchase journey – including both first home buyers and consumers refinancing their home loan.

“We have complemented this research by surveying consumers that had recently taken out a loan or were considering taking out a loan.

“A focus of our research has been to understand what factors drive consumer home loan decisions and consumer outcomes. We are also aiming to identify critical events in the home loan journey and how behaviour may be influenced during the loan process.”

Again, this report is expected to be released publicly by mid-2019.

Mr Saadat concluded: “As we look to the future, now on the other side of the royal commission, ASIC is committed to working with government and industry to implementing the recommendations in the final report.

“Commissioner Hayne made many recommendations to strengthen the twin peaks model of financial regulation, including 34 recommendations requiring legislative change that will expand ASIC’s remit, strengthen our powers and require more of the entities we regulate. Of those 34 recommendations, 11 will extend ASIC’s remit and powers, whilst 23 recommendations will impose new requirements or restrictions on the entities we regulate.

“ASIC will supervise industry’s implementation of those new requirements and take action where there is non-compliance,” he said.

[Related: ASIC mortgage reports due next year]