ASIC has applied some of its fresh funding to expand and accelerate its review of mortgage broker remuneration structures.
This week it released the final scope of its review, which encompasses the following:
- remuneration structures (including non-monetary benefits) that relate to the distribution of home lending products present throughout the value chain (including lenders, brokers, online, referrers and introducers);
- ownership structures of all industry participants, including fully vertically integrated businesses and other types of commercial alignments between review participants; and
- consumer outcomes (such as price, product accessibility, product features and loan performance) to the extent that they are impacted by behaviour driven by different remuneration structures.
The recent ASIC Capability Review identified shortcomings in the regulator's IT infrastructure and data, the efficacy of its data tools and the expertise of staff. In spite of this (and presumably buoyed by $61 million in funding recently announced to enhance ASIC's data capabilities), ASIC is launching an extensive 'big data' exercise as part of the current review.
ASIC will soon (reportedly in the next fortnight) send requests to key lenders and mortgage broking groups, requesting full details of various payments that banks make to mortgage brokers.
ASIC will also measure loan performance data over a 5 year period. The results of this investigation will be particularly telling in light of APRA's findings in a 2014 report that there was a 'significantly higher' default rate for broker-originated loans.
As part of its review, ASIC may consider a mystery shopping investigation, after one conducted last year by CHOICE with regard to 3 of the biggest mortgage broker businesses in Australia identified some less than perfect practice, in particular lack of commission disclosure, inappropriate advice, pressure sales tactics and upselling with little consideration of risk. CHOICE and other consumer advocacy bodies were critical of the absence of this level of examination in the initial scope of ASIC's review. For obvious reasons, the final scope of ASIC's review did not mention whether it will undertake mystery shopping, but it would appear an appropriate means of analysing consumer outcomes in terms of how brokers sell products.
The final scope of the mortgage broking review appears to be deliberately narrow, focussed solely on residential mortgage products and expressly excluding other products. However, the outcome of this review, coupled with ASIC's learnings from the exercise of its new product intervention power, could see ASIC expanding its investigations across a broader range of products.
From the unfavourable shadows cast by the Senate Inquiry into ASIC and the Capability Review, and emboldened by its new funding, ASIC will optimise the current review to demonstrate its effectiveness and silence calls for a Royal Commission into banks.