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Compliance in a digital world

Compliance in a digital world

Brokers are under growing pressure to ensure their clients’ financial positions are accurately reflected in loan applications. Tas Bindi speaks to brokers, aggregators and software providers about the role technology can play to help brokers stay on top of the evolving compliance regime.

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Brokers will know well that many lenders have been tightening up their credit policies around income, expenses and benchmarking in recent months. The moves come against the backdrop of an ongoing financial services royal commission, which has highlighted many cases where non-qualifying loans were approved, only to end up in default.

Commonwealth Bank notified mortgage brokers earlier this year that it would be looking closely at 11 categories of living expenses on loan applications, while Westpac updated its expense guidelines, requiring documentation at an “itemised and granular level” across 13 categories. ANZ followed suit, cautioning brokers to ensure that an “accurate reflection of the customer’s financial position is presented”.

At the other end, mortgage brokers have expressed frustration over the increasing interrogation of living expenses, saying that lender responsibilities are being palmed off to brokers. The Australian Securities and Investments Commission (ASIC) had also said that lenders shouldn’t offload blame to third parties when a loan is found to be in breach of responsible lending obligations.

However, Tony Carn, director of sales at NextGen.Net, noted that the reason lenders are introducing new validation rules is because the onus is on them to ensure they’re proactively managing risks. He added that technology providers, including aggregators, also have a role to play in helping brokers navigate the complexities of the ever-evolving compliance regime.

As one of the largest technology service providers in the industry, NextGen.Net also has to respond quickly to compliance changes to ensure its software can support new requirements, but with the goal of boosting efficiency in mind. Mr Carn said that rather than brokers having to submit a 12-page, paper-based form with duplicate information under new compliance requirements, by using NextGen.Net’s e-lodgement platform, the borrower may only have to answer a few extra questions.

Another company that has found an opportunity in the changing risk appetite of lenders is Opica Group, whose artificial intelligence-powered income and expenses verification engine, RELIE, was designed with the aim of helping brokers meet their responsible lending requirements more efficiently.

Opica Group chair Brett Spencer said that RELIE, which launched in March this year, “takes away the human element of the unknown”. In other words, brokers don’t have to spend hours sifting through troves of transactional data not knowing what to look for.

The platform automatically analyses a customer’s banking and credit card transaction data, then provides income verification and categorises transactions and transaction types, such as mandatory versus discretionary expenditure and recurring versus one-off spending.

It also highlights areas of concerns within the transaction data, such as undisclosed debts and spikes in expenditure of high-risk categories such as gambling.

One of the earliest adopters of RELIE is Home Loan Connexion. The broking group’s director, Tracy Keary, claimed that the platform has cut down the time it takes to complete income and expense checks from more than two hours to about half an hour.

“I would spend two-plus hours just going through bank statements, not anything else on the application. Now we’re spending maybe 30 minutes if it’s a fairly straightforward application. It can go up to an hour if [there’s] more involved,” the director said.

“It’s so much more reliable because it’s all itemised. Maybe if one month the customer spent X at the gym, you don’t have to keep looking for it. [The platform] detects it automatically.”

Ms Keary added: “If a customer forgets a debt — and that does happen, like [forgetting] their Afterpay or Zip Pay [commitments] — the system picks it up.” The director noted that Home Loan Connexion brokers still check the reports generated by RELIE as part of their due diligence process, but the platform still “takes out a lot of the guesswork”. She said that paying $10 to $15 per customer is “definitely a worthy investment” given the efficiencies gained in return.

“We have a fundamental belief that the future of broking for many brokers is a combination of digital interaction with customers married with high-quality face-to-face advice.” - Stephen Moore, CEO, Choice

Stephen Moore, CEO of Choice, said that the aggregator started offering RELIE as an “adjunct to Podium”, its CRM system. In his view, the key benefit provided by the platform is the ability for brokers to work with customers in understanding what their mandatory and discretionary expenses are.

“Technology plays a role in a support capacity. The categorisation of expenses is valuable, but what is the most valuable is then exercising judgement to help customers understand what their true mandatory expenses are,” Mr Moore said.

“You can see these tools as a precursor to where we’re going with open banking as well.”

While Choice strives to swiftly respond to changes in the compliance regime so that Podium can facilitate the fulfilment of the latest requirements, the CEO admitted that it’s no easy feat keeping up with compliance changes from a technical perspective. In 2017, Choice made more than 300 compliance and regulation changes to support its brokers.

“Technology has a key role to play [in supporting brokers] and that’s why we invest significant amounts into Podium. It’s about streamlining a broker’s business, ensuring processes are compliant, and most importantly, helping brokers maximise their client face-to-face time,” Mr Moore said.

NextGen.Net’s Mr Carn noted that while technology can make compliance tasks significantly less cumbersome, one of the industry challenges has been maintaining a standardised approach to income and expense verification. “When they input data in a CRM system and then go to a lender with different requirements and have to do it again, that’s an understood frustration for brokers, but it’s a [problem] that takes collaboration and time to [fix],” Mr Carn said.

“I think the four major banks and the Combined Industry Forum have worked very well in concert together to develop everything in a standardised format, and we’re always trying to get everyone to move to that standard quickly, but it takes time, as with anything new.”

Broking under the open banking regime

Mr Moore firmly believes that brokers will significantly benefit from comprehensive credit reporting (CCR) and open banking more broadly.

“We have a fundamental belief that the future of broking for many brokers is a combination of digital interaction with customers married with high-quality face-to-face advice,” the CEO said.

“The reason we say that is because what [open banking] will then enable, with the client’s permission, of course, is the [ability] to have all of the hard data that other institutions would have on that client.”

He continued: “But because brokers know clients better than anyone else across the chain, we think that [they] are in the box seat to be the beneficiaries of comprehensive credit reporting and open banking.

“They’re in the box seat to provide customers with not only better advice [in line with] their circumstances, but in many cases where there’s more work that a customer needs to do to correct any deficiencies on credit record, it’s a real value-add to work with customers right up front in the process, rather than wait until after loan submission.”

“Having open banking is one thing, but it’s about how you actually get the most efficient design process to actually leverage that.” - Tony Carn, director of sales, NextGen.Net

The Choice CEO went on to say that “customer data is king” and that spending time on managing customer data on an ongoing basis will help brokers future-proof their business.

Mr Carn is similarly optimistic about the impact of open banking on the industry, saying that it will enable a more efficient means to validate data in applications — even in real time — with the validation process expected to be more accurate and cheaper for brokers and lenders alike.

But the director also thinks that it will take some time before the benefits of open banking make their way through to the mortgage process, noting that what’s more important than having open banking is “how you actually get the most efficient design and process to actually leverage it”.

While Mr Spencer suggested that open banking may not necessarily make the broker’s ability to get a loan approved any easier, it will enable them to prepare a loan application more accurately, efficiently and effectively.

He added that the sharing of data between financial services entities will “flow down to provide efficiencies to the broker market” in ways yet to be realised.

TIPS FOR NEW BROKERS

Aaron Milburn, director of sales and distribution at Pepper Money, suggests what new brokers should consider before investing in new technology:

“Before considering any technology, a broker needs to answer two simple questions: What are the sort of customers you want to help succeed? And why would that customer choose you over another broker?

“Having a clear picture of the sort of customers you want to attract is the key to working out how to attract them and how to build lasting relationships.

“Only then should a broker consider what technologies to adopt in order to facilitate those goals. These technologies will need to improve speed and ease of transaction, while balancing compliance and getting the customer in the right product/solution first time with a fantastic customer experience.

“The customer must come first and their experience must be seamless and memorable. Any technology that assists a broker in fulfilling those goals can create a customer for life. The technology should be simple, and it should help find solutions to real-life problems.

“Showing that you truly understand what your customer wants, and being able to provide that solution quickly, will pay dividends.”

Compliance in a digital world
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Tas Bindi

Tas Bindi

Tas Bindi is the features editor with The Adviser magazine, Australia’s leading magazine for mortgage brokers. She writes about the mortgage broking industry, fintech, financial regulation, and mortgage market trends.  

Prior to joining Momentum Media, Tas wrote for business and technology titles such as ZDNet, TechRepublic, Startup Daily, and Dynamic Business. 

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