The industry association has responded to a suggestion made by Commissioner Hayne that the payment of value-based commissions to brokers “might” be breaching NCCP obligations.
Executive director of the Finance Brokers Association of Australia (FBAA) Peter White has rejected claims made by Commissioner Kenneth Hayne in the interim report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
Commissioner Hayne alleged that lenders paying value-based upfront and trail commissions could be in breach of section 47(1)(b) of the National Consumer Credit Protection Act (NCCP).
Section 47(1)(b) states that licensees must “have in place adequate arrangements to ensure that clients are not disadvantaged by any conflict of interest that may arise wholly or partly in relation to credit activities engaged in by the licensee or its representatives”.
However, Mr White said that the interim report did not find any systemic evidence to suggest that conflict of interest in the payment of commissions to brokers directly disadvantages clients.
The FBAA director added that he believes licensees already have “adequate arrangements” in place to prevent conflicts of interest.
Mr White added: “The commissioner pointed out that a breach of the NCCP is not an offence or open to civil penalty.
“I would argue that the cancellation or suspension of a broker’s licence by ASIC is a substantial penalty in itself.”
Mr White also sought to dismiss concerns raised by the commissioner over the number of loans submitted via the broker channel with higher loan-to-value ratios (LVRs).
“It’s the broker’s duty to put the client’s interest first and to meet, if not exceed, their expectations,” the FBAA executive director said.
“In meeting client needs, brokers are often asked to source higher leverage loans to appropriately support their needs, taking into account a client’s debt levels and loan-to-valuation ratios.
“It’s a broker’s ability to source a specific loan product to suit their client’s specific needs that gives us a market advantage.”
Mr White concluded by stating that brokers were at the forefront of efforts to improve service delivery and remuneration structures.
The FBAA echoed comments made by the Mortgage & Finance Association of Australia (MFAA), which told its members: “The self-regulatory approach the industry is taking through the [Combined Industry Forum] remains the best way to improve customer outcomes, standards of conduct and culture, while preserving and promoting a vibrant and competitive mortgage broking industry that encourages consumer choice.”
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: MFAA reveals its thoughts on RC report]