The government has confirmed that mortgage brokers will be included in the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
The Governor-General has now issued the Letters Patent to the Honourable Kenneth Madison Hayne AC QC, formerly a judge of the High Court, establishing the royal commission.
Notably, the Treasury outlined that the Letters Patent require the royal commission to inquire into the conduct of financial services entities, “including banks, insurers, superannuation trustees, holders of Australian financial services licenses and intermediaries such as mortgage brokers”.
Following unconfirmed reports that brokers would come under the review, intermediaries between borrowers and lenders have now been added after the government’s consultation with the appointed Commissioner on the draft Terms of Reference, which were released earlier this month.
The royal commission will examine allegations of misconduct or conduct which falls below community expectations. The commission will be focused on identifying ways to ensure that Australia’s financial system continues to work efficiently, effectively and in the interests of consumers.
Commissioner Hayne is authorised to submit an interim report to the Governor-General no later than 30 September 2018, and he is required to submit a final report no later than 1 February 2019.
“The financial system plays an important role in the lives of all Australians and we encourage all interested parties to engage with the royal commission,” Treasurer Scott Morrison said.
“The government has already taken comprehensive action to deliver better outcomes and protections for banking and financial services customers.
“This includes moving to establish a new one-stop shop to resolve customer complaints; significantly bolstering the powers and resources of the Australian Securities and Investments Commission; creating a framework to hold banking executives accountable for their actions; and boosting banking and financial services competition.”
‘Brokers shouldn’t be worried’
The head of an industry association has stated that brokers “should not be worried” about the royal commission into misconduct.
Speaking to The Adviser after the reports were released, the executive director of the Finance Brokers Association of Australia (FBAA), Peter White, stated that he was not surprised that the commission could cover the third-party channel, given that more than half of mortgages are now written by brokers.
Mr White said: “We have a very robust banking system, but it is so big that it is fraught with more challenges. We can see that with what is happening in the financial services space and the insurance space, the breaches of AML/CT and the intelligent deposit systems. There are issues in that space. So, the royal commission that is coming in was bound to happen. There has been so much happening in the marketplace that it shouldn’t be unexpected.
“But, as far as the royal commission goes in terms of overlapping into broking, I’m happy to come out and say that there is nothing systemically wrong with broking and I don’t think brokers should be worried about it.”
The CEO of the MFAA, Mike Felton, told The Adviser on Monday (18 December): “Mortgage broking was not called out in the original Terms of Reference. However, given 55.7 per cent of all mortgage lending is originated through brokers, we expected that aspects of mortgage broking would be looked at by a royal commission into banks and financial services, and the industry will fully engage with the process and respond as required.
“We have, however, had two significant reviews in the past 18 months, in the ASIC broker remuneration review and the Sedgwick report. Neither of these found systemic poor outcomes or systemic harm to consumers, which I believe will stand us in good stead, regardless of the direction the royal commission takes.
“The royal commission does not impact the work we are doing in the Combined Industry Forum. It is business as usual as we respond to the ASIC recommendations, and we’re already implementing reforms to further improve consumer outcomes and the strength of our industry.”
[Related: Brokers may fall under royal commission]