The long-awaited final report of the Hayne Royal Commission into misconduct in the banking, superannuation and financial services industries has just been released, and comes at a critical time for the Australian property industry.
The Commission was established on 14 December 2017 by the Governor-General of the Commonwealth of Australia, His Excellency General the Sir Peter Cosgrove AK MC (Retd).
On the same day Former Justice of the High Court of Australia, The Hon Kenneth Hayne AC QC, was appointed Royal Commissioner into Misconduct in the Banking, Superannuation and Financial Services Industry.
The report, a lengthy 530-pages, provides 76 recommendations as to how the Government can strengthen these industries. Among those recommendations are several which could hold many significant changes towards the mortgage broking industry and thus could have onflow consequences for the property industry.
Some of the Royal Commission’s recommendations include:
- The law should be amended to provide that, when acting in connection with home lending, mortgage brokers must act in the best interests of the intending borrower. The obligation should be a civil penalty provision.
- The borrower, not the lender, should pay the mortgage broker a fee for acting in connection with home lending.
- Changes in brokers’ remuneration should be made over a period of two or three years, by first prohibiting lenders from paying trail commission to mortgage brokers in respect of new loans, then prohibiting lenders from paying other commissions to mortgage brokers.
- After a sufficient period of transition, mortgage brokers should be subject to and regulated by the law that applies to entities providing financial product advice to retail clients.
Ken Morrison, Chief Executive of the Property Council of Australia (PCA) said mortgage brokers account for more than half of all home loans settled and are a vitally important source of advice and access to competitive finance for Australian property buyers.
“The abolition of trail commissions and the proposed shift in future to a ‘borrower pays’ model for broker commissions will need to be very carefully managed so that the objective of better outcomes for consumers is achieved without making it harder for qualified borrowers to find and secure competitive finance for property purchases,” said Mr Morrison.
“The proposed alignment of the regulatory framework for mortgage brokers with that of financial advisers may also impact on the future structure of the industry and access to finance.
“The property industry will need to be consulted on the transitional arrangements, particularly given the current uncertain state of the residential property cycle,” he commented.
The Australian Government has agreed to act on all 76 recommendations contained in Commissioner Hayne’s final report and in a number of other areas going forward.
Restoring trust, better consumer outcomes, maintaining the flow of credit and promoting competition were central to the Federal Government’s response.
The Royal Commission’s final report can be found here.