Immediate changes unlikely as Treasury appears to let MFAA, FBAA, ABA and COBA begin self-regulation
Immediate changes unlikely as Treasury appears to let MFAA, FBAA, ABA and COBA begin self-regulation
Broker remuneration will be decided by the industry rather than by regulators, the MFAA has indicated.
In an exclusive interview with MPA and Australian Broker, MFAA Mike Felton explained that; “ASIC and the Treasury have been very clear with all the meetings that we’ve had that they’ll give the industry a chance to self-regulate.”
Felton made the claim as the MFAA submitted its views on ASIC’s Review of Mortgage Broker Remuneration to the Treasury. Self-regulation will be led by the four industry associations involved in June’s industry forum: the MFAA, FBAA, Australian Bankers Association and Customer Owned Banking Association.
According to Felton, ASIC and the Treasury have not set a deadline for self-regulation: “if we continue to show progress we will be given the time to make meaningful changes to the extent it stalls then I believe a timeline will be appropriate.”
Instead, the industry will set its own timeline at a meeting in mid-July, with Felton commenting that “the next six months will be a very busy period.”
Key issues and the ‘positive-sum approach’
In its submission to Treasury, the MFAA gave an indication of the viewpoints it will carry into self-regulation.
The MFAA has warned that ASIC’s suggestion of determining commission partly by LVR was “potentially suitable but [could involve] unforeseen consequences”, particularly for first home buyers, tax-gearing investors and brokers who put extra work into high LVR loans. They have dismissed suggestions of flat fees, standardised upfront commission or that commission size could be solely determined by complexity.
With regard to volume-based incentives, the MFAA says paying VBIs to brokers should be “urgently done away with” and that campaign bonuses should be removed. The MFAA says broker clubs should remain but entry should be based on a balanced scorecard and bonuses should not include increased commission.
Overall Felton says the MFAA want to promote competition and not leave any participant in the value chain worse off, with a “positive-sum approach”.
The cost of self-regulation
MFAA members will not experience increased costs as a result of self-regulation through the combined industry forum, Felton has promised: “it’s not going to cost them a cent; we have it budgeted into our expenses and it’ll be costing them nothing.” Whilst the forum won't cost MFAA members extra, the increased governance, monitoring and oversight that could emerge from it will have costs that need be borne by the industry as a whole, says Felton; "we will need to decide how best to do that."
“The cost to us is significant,” added Felton, “but the time and effort have been worthwhile; that’s what associations do for their members; it’s at times like these associations step up and make sure these review processes are informed.”
As difficult as herding cats?
With self-regulation depending on four very different associations cooperating over an extended period, there is potential for things to go wrong.
The Sedgwick Review was an example of the ABA taking unanimous action without consultation and was roundly criticised upon its release. Under intense political pressure, banks could be tempted to take further unanimous action. Felton did not have a plan to deal with such a situation, but portrayed it as unlikely:“one cannot predict all eventualities; I think for the moment we have a combined industry forum, it is absolutely committed to the task and we’ll take it one step at a time.”
Ultimately commission structure is decided between a lender and aggregator and it is possible an aggregator could reject the new regulations, but according to Felton “at this stage, it is unanimous across the entire aggregation panel that everybody wants to be involved with this process of self-regulation.”
The next industry forum will take place in mid-July; MPA will be reporting on the results of that and other associations' submissions to the Treasury.
Broker remuneration will be decided by the industry rather than by regulators, the MFAA has indicated.
In an exclusive interview with MPA and Australian Broker, MFAA Mike Felton explained that; “ASIC and the Treasury have been very clear with all the meetings that we’ve had that they’ll give the industry a chance to self-regulate.”
Felton made the claim as the MFAA submitted its views on ASIC’s Review of Mortgage Broker Remuneration to the Treasury. Self-regulation will be led by the four industry associations involved in June’s industry forum: the MFAA, FBAA, Australian Bankers Association and Customer Owned Banking Association.
According to Felton, ASIC and the Treasury have not set a deadline for self-regulation: “if we continue to show progress we will be given the time to make meaningful changes to the extent it stalls then I believe a timeline will be appropriate.”
Instead, the industry will set its own timeline at a meeting in mid-July, with Felton commenting that “the next six months will be a very busy period.”
Key issues and the ‘positive-sum approach’
In its submission to Treasury, the MFAA gave an indication of the viewpoints it will carry into self-regulation.
The MFAA has warned that ASIC’s suggestion of determining commission partly by LVR was “potentially suitable but [could involve] unforeseen consequences”, particularly for first home buyers, tax-gearing investors and brokers who put extra work into high LVR loans. They have dismissed suggestions of flat fees, standardised upfront commission or that commission size could be solely determined by complexity.
With regard to volume-based incentives, the MFAA says paying VBIs to brokers should be “urgently done away with” and that campaign bonuses should be removed. The MFAA says broker clubs should remain but entry should be based on a balanced scorecard and bonuses should not include increased commission.
Overall Felton says the MFAA want to promote competition and not leave any participant in the value chain worse off, with a “positive-sum approach”.
The cost of self-regulation
MFAA members will not experience increased costs as a result of self-regulation through the combined industry forum, Felton has promised: “it’s not going to cost them a cent; we have it budgeted into our expenses and it’ll be costing them nothing.” Whilst the forum won't cost MFAA members extra, the increased governance, monitoring and oversight that could emerge from it will have costs that need be borne by the industry as a whole, says Felton; "we will need to decide how best to do that."
“The cost to us is significant,” added Felton, “but the time and effort have been worthwhile; that’s what associations do for their members; it’s at times like these associations step up and make sure these review processes are informed.”
As difficult as herding cats?
With self-regulation depending on four very different associations cooperating over an extended period, there is potential for things to go wrong.
The Sedgwick Review was an example of the ABA taking unanimous action without consultation and was roundly criticised upon its release. Under intense political pressure, banks could be tempted to take further unanimous action. Felton did not have a plan to deal with such a situation, but portrayed it as unlikely:“one cannot predict all eventualities; I think for the moment we have a combined industry forum, it is absolutely committed to the task and we’ll take it one step at a time.”
Ultimately commission structure is decided between a lender and aggregator and it is possible an aggregator could reject the new regulations, but according to Felton “at this stage, it is unanimous across the entire aggregation panel that everybody wants to be involved with this process of self-regulation.”
The next industry forum will take place in mid-July; MPA will be reporting on the results of that and other associations' submissions to the Treasury.
