Commissioner Ken Hayne has questioned whether accreditation requirements skew the relationship between brokers and their clients.
Accreditation practices in the mortgage industry may be blurring the relationship between lenders and brokers, Commissioner Ken Hayne has said in reference to evidence provided by Commonwealth Bank (CBA) to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
During the first round of hearings, the commission heard evidence from CBA’s executive general manager, home buying, Daniel Huggins, regarding the relationship between the bank’s accreditation policy and its view of “agency” in the broker channel.
However, Commissioner Hayne claimed that there was a discrepancy in the Mr Huggins’ evidence and the bank’s written submission.
The commissioner claimed that the “tenor of Mr Huggins’ evidence was that CBA regards its accredited brokers as acting as its agent when dealing with customers”, but added that in its written submissions, “CBA denied that the brokers were its agent”.
Commissioner Hayne went on to state that by choosing to deal only with brokers it has accredited, CBA treats intermediaries like its agents.
“By accrediting brokers, CBA decides which third parties can offer loans to it and, hence, whether those third parties can offer borrowers loans from the largest lender in the home loan market,” Mr Hayne said.
“Second, CBA can treat those whom it accredits as its brokers, selling its products and it can and does choose to favour those brokers who send more business to it over others.
“Yet, despite Mr Huggins’ evidence, CBA was at pains, in its written submissions, to deny that a broker acts for anyone but the borrower.”
In its submission, CBA stated: “[W]hen the broker submits the loan application to the lender which the customer has chosen, the broker is acting as the agent of the customer, not as agent of the lender.”
Commissioner Hayne continued: “Two points should be made. First, [analysing] the matter by reference only to questions of agency is to ask too broad a question and is, therefore, apt to mislead.
“Second, the relationships that are created and the tasks that are performed by broker and lender are apt to create confusion for the borrower about the roles and responsibilities of each.”
Off the back of its censure from the royal commission, CBA has been amending the way it accredits brokers throughout the course of 2018, and it has brought in minimum education standards and requirements for new broker accreditations as well as changed its segmentation model to account for qualitative and quantitative metrics.
Submissions in response to the commission’s interim report can be made on the royal commission website and must be received no later than 5pm on 26 October 2018.
The commission will release a final report, which will include the topics of the fifth, sixth and seventh rounds of hearings (focusing on superannuation, insurance and “policy questions arising from the first six rounds”, respectively) by 1 February 2019.
[Related: Royal commission questions longevity of HEM]