Improving transparency and the data available on the broking industry and banking is “in everyone’s interests” and could actually benefit the sector, the heads of the broker associations have said.
The leaders of the Finance Brokers Association of Australia Limited (FBAA) and Mortgage and Finance Association of Australia (MFAA) made the comments when speaking to The Adviser following the release of the royal commission’s report on broking.
Last week, the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry highlighted a “lack of data” on several aspects of the mortgage broking industry.
For example, the royal commission highlighted that detailed information on the number of mortgage brokers and aggregators over time is “limited”, and there is “no public information on the aggregate number of brokers operating under a franchise”, nor could it find public information on the total number of mortgage aggregators owned by ADI lenders.
Other areas that the royal commission outlined were hard to quantify due to a lack of publicly available information. These included:
- the value of commissions paid to mortgage aggregators and mortgage brokers by lenders
- characteristics of loans arranged through the mortgage broking channel
- the number of mortgage brokers that are credit representatives
“If you get transparency right, you get people’s trust”
Speaking of the data gap, the executive director of the FBAA, Peter White, noted that ASIC and the Productivity Commission also had difficulty quantifying some aspects of the mortgage market, with ASIC even proposing in its remuneration review that there be public reporting on:
- the actual value of remuneration received by aggregators and the potential value if all criteria for remuneration are satisfied
- the average pricing of home loans that brokers obtain on behalf of consumers
- the average pricing of home loans provided by lenders according to each distribution channel
- the distribution of loans by brokers between lenders to give consumers a better indication of the range of loans that brokers within the network offer
Mr White said: “The Productivity Commission and ASIC said the same things and I think this is because the banks are not forthcoming with the data that these commissions are trying to get to.
“There is a gap in the data to start with.”
Mr White highlighted a recent UBS report that claimed that broker distribution added 16 basis points to the interest rate, but he noted that the investment bank’s analysts didn’t say what the cost of distribution was through a bank.
“They didn’t say that it can cost the equivalent of 32 basis points, or thereabouts, to go through bank networks, and that it is actually cheaper for the bank to go through the broker channel,” Mr White told The Adviser.
He added: “The Productivity Commission referred to [the cost data] as ‘a black box’ that no one can get to. But that information should be readily available. So, the question is why. Truth comes through transparency and if you get that transparency right, you get people’s trust.”
The FBAA executive director suggested that while improving transparency may not directly benefit consumers, it could ensure that the regulators and banks “understand the market more clearly”.
“This could be what [the commissions] are there to do. Maybe they will dispel the myths that are constantly leveled at broking.”
Mr White added that the FBAA “will be bringing more data to the table in the next couple of weeks that will further clarify the broker position in the market size and its history”.
The new index will reportedly measure the size of the broking sector on a state and national bases.
He added that the association will be adding further input to the royal commission and Productivity Commission.
Likewise, the CEO of MFAA, Mike Felton, noted that “the observations of the royal commission are not dissimilar to those of the ASIC broker remuneration report”, which indicated that the industry required “improved data not only for governance purposes but to ensure greater transparency and that customers have the required information to make informed decisions”.
Mr Felton said that the Combined Industry Forum had addressed this in its reform package, which is currently being implemented, and that these include a number of disclosures around ownership and influence, as well as “a new public reporting regime where lenders, aggregators and brokers will both publish and provide additional data to ASIC to enable customers to make more informed decisions when choosing a channel, aggregator or broker”.
He said: “Importantly, these disclosures will be consumer-tested before being implemented to ensure they are useful.
“Improving transparency and the data available on our industry is in everyone’s interests.”
MFAA has this week new data relating to broker market share.