The cost of implementing the CIF’s broking industry reforms will largely fall on aggregators and lenders, according to a representative from a major bank.
At a Combined Industry Forum (CIF) event in Melbourne on Monday (10 September), finance broker Anthony McDonald asked members of the forum who would bear the cost of implementing the CIF’s proposed changes, including the many components of the new data-driven reporting regime that will be in full effect by 2020.
Anthony Waldron, executive general manager of broker partnerships at National Australia Bank (NAB), responded that the cost burden will be mostly shouldered by aggregators and lenders, as it will be their responsibility to capture, monitor and share data on brokers with regulators.
A similar sentiment was expressed by the executive director of the Finance Brokers Association of Australia (FBAA), Peter White, who said that aggregators will have to do most of the “heavy lifting” when it comes to complying with the new reporting regime.
Brokers will also have reporting responsibilities under the new regime, but it will not be too burdensome, according to Mr White.
“From the aggregator’s point of view, [there] is quite a significant amount of information that they’ll need to put together, and the lenders as well in regards to the weighting of their pricing of home loans,” the FBAA executive director said.
“I don’t think the actual information that the brokers will need to put out is going to be anything that’s going to create significant burden. So, a list of lenders that are available to their customers, number of lenders [they] used the previous financial year, and the top six lenders and percentage of business written in the previous financial year.”
The six indicators that will be used to detect risk in the data include:
- percentage of owner-occupied and interest-only loans;
- 90-day-plus arrears on loans originated within the last 12 months;
- switching lenders in the first 12 months;
- elevated level of customer complaints relative to industry;
- post-settlement surveys relative to industry; and
- deficiencies in requirements and objectives documentation.
Mr Waldron said that the challenges for brokers moving forward will largely be around migrating to new systems and processes.
“As much as possible, we’re working with aggregators etc to try and make any reporting that brokers need to do as easy as possible and as standardised as possible off the back of systems etc that you are using, but [we’re] conscious that it does take time,” the NAB executive GM of broker partnerships said.
While regulatory talks have been around reducing or eliminating commissions, particularly in the last year, Mr McDonald questioned whether an argument could be put forward for raising the commissions paid to brokers to reflect their increasing workloads, especially with the banks tightening up their credit policies around income, expenses and benchmarking in recent months.
Mark Haron, director at Connective, agreed that there is “definitely an argument” to increase broker commissions, but implied that it won’t be easy to push forward at this stage.
“The banks are spending considerable amount of money having to change systems and software platforms to manage and administrate these functions, particularly where they’re looking at making the additional payments post-settlement, where those further funds are drawn down, being able to monitor and control that... it’s quite extensive,” Mr Haron said.
“We’ll get through this first round [of reforms], trying to preserve as much as what we have as possible and then we’ll be coming back.”
Mr Haron noted, however, that the CIF’s intention is to ensure “no one would be any worse off” from implementing the reforms.
“If we do find that there is a considerable reduction in broker commissions that are paid out, then we’ll be going back and addressing that again in a commercial sense, as an aggregator, not from a forum perspective,” the Connective director added.
Similarly, Mr White said that while the discussion on raising broker commissions needs to be had — especially because “brokers in Australia [are] among the lowest paid in the world” — it’s not a discussion for today.
“We did a research piece back in late 2016 on what brokers were paid in seven countries around the world and it demonstrated that brokers in Australia [are] among the lowest paid in the world,” Mr White said.
“My point of view there is [it’s] certainly a discussion [that] needs to be had there. [When you] look at when clawbacks came in or when the exit fees were banned, brokers took a haircut back then, [and the] cost of compliance [and] cost of running our business is only going up.
“But I would caveat that by saying it’s not today’s conversation.”