Aggregators are under pressure to monitor their members more closely and dedicate more resources to compliance, which comes at a price. But will brokers ultimately foot the bill?
Being a mortgage broker is about to get more expensive. Whether you’re an authorised credit representative or an Australian Credit Licence (ACL) holder, it looks like the increased scrutiny of the industry will result in rising compliance costs.
Connective has already increased its fees to pay for an “increased headcount” and more compliance workshops, among other compliance services, while another major aggregator is understood to be mulling the best way to cover the increased cost of compliance.
The Australian lending landscape has been hit by a tsunami of scrutiny over recent years. In addition to macro-prudential measures on the banks, the mortgage market has had to navigate the ASIC remuneration review, the Sedgwick report, a Productivity Commission and, most recently, the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. The third-party channel has played a central role in all of these.
As a result, banks have become increasingly vigilant about the quality of loans they receive from brokers. Given that banks generally deal with head groups, rather than individual loan writers, the compliance burden has fallen on Australia’s aggregation businesses.
For example, one major aggregator told The Adviser that up until last year, an average of four broker files would be audited each month. This has grown significantly to around 40 files a month. If they require work, that’s a big impost for aggregators.
Meanwhile, ASIC has made clear that aggregators will now be responsible for managing ACLs to the same degree as ACRs. Banks have the same view. Previously, aggregators had no compliance costs for ACL holders. Now they do.
In addition, aggregators are faced with the rising and ongoing costs of training and professional development. Education is becoming a critical part of an aggregator’s offering in these tumultuous times as the industry works together to improve standards. Up until recently, the banks have been happy to share the cost of aggregator events and PD days but lately have been steadily cutting back on sponsorship. Those costs have to be passed on in some way.
Brokers are likely to wear the cost of these imposts. What form that takes or how much it will cost remains to be seen. Some aggregators will lift their fees. Others may opt to charge an additional compliance fee.
Listed groups like AFG, Mortgage Choice and Yellow Brick Road will have shareholders to consider when making these decisions.
For bank-owned groups like FAST, Choice, PLAN and Aussie, will the increased compliance costs be absorbed by the broader group, passed on to consumers by the bank or charged to brokers?
Of course, the increased cost of compliance could be temporary, a point-in-time burden that the industry works through. But this is doubtful.
Judging by the level of scrutiny at the moment, it’s safe to expect regulation and compliance will play an increasingly bigger role. And a pricier one.