Media release from the Hon Josh Frydenberg, Treasurer on Tuesday 12 March 2019
Following consultation with the mortgage broking industry and smaller lenders, the Coalition Government has decided to not prohibit trail commissions on new loans, but rather review their operation in three years’ time.
The review will be conducted by the Council of Financial Regulators and the Australian Competition and Consumer Commission (ACCC) – a review which will also consider the continuation of upfront commissions and which has already been announced.
This review will follow the introduction of a number of new measures that the Government has already announced including: the best interests duty that will legally obligate mortgage brokers to act in the best interests of consumers; a new requirement that the value of upfront commissions be linked to the amount drawn‑down by borrowers; a ban on campaign and volume-based commissions; as well as a two year limit on claw-back, starting from 1 July 2020. These changes will address conflicts of interest in the industry by better aligning the interests of consumers and mortgage brokers.
Mortgage brokers are critically important for competition and delivering better consumer outcomes in the mortgage market. Almost 60 per cent of all residential mortgages are settled by mortgage brokers.
There are 16,000 mortgage brokers across Australia – many of which are small businesses – employing more than 27,000 people. The Government wants to see more mortgage brokers – not less.
ASIC’s 2017 review of mortgage broking remuneration did not identify trail commissions as directly leading to poor consumer outcomes and did not recommend the removal of trail commissions.
The Government continues to get on with the job of restoring trust in Australia’s financial system, taking action on all 76 recommendations contained in the Final Report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry and, in a number of important areas, going further.
Since receiving the Final Report last month, the Government has extended the Australian Financial Complaints Authority’s remit. We have passed legislation through the Senate to extend civil penalties to superannuation fund trustees and directors for breaches of their best interests duty and ban superannuation funds from inducing employers. We have released exposure draft legislation to ban grandfathering of conflicted remuneration. We have released a consultation paper on removing the insurance claims handling exemption. We have commenced a capability review of the Australian Prudential Regulation Authority and an immediate review of financial counselling services. We have also initiated work towards establishing a national farm debt mediation scheme.
Only the Government can be trusted to protect the mortgage broking sector and ensure that competition is strengthened so consumers get a better deal.
Restoring trust in Australia’s financial system is part of our plan for a stronger economy.