ASIC uses funding to target mortgage broker remuneration in data-driven review

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.

Scott Atkins

I'm unapologetically determined and fearless. I pursue excellence. Always.

Scott Atkins Partner

Scott is the Chair of our Board and an internationally renowned insolvency and restructuring lawyer. He is an inaugural Fellow and a member of the Board of INSOL International. Scott is also Vice President of the Australian Restructuring Insolvency and Turnaround Association (ARITA).

Scott is a trusted adviser to Australia's leading banks and insolvency and restructuring practitioners and has acted on some of the industry's most complex and sensitive banking and insolvency advisory and dispute resolution matters.

Prior to joining HDY, Scott practiced for 7 years as in-house counsel with Commonwealth Bank Group. He is now our Client Relationship Partner for the CBA Group. He is also the co-leader of our cross-border insolvency practice and our regulatory enforcement practice. Scott is recognised by his peers for his leading expertise in cross-border insolvency, acting on both inbound engagements in Australia and advising Australian clients on outbound engagements in the USA, UK, Cayman Islands, Hong Kong and The Netherlands, among other jurisdictions.

Scott was the Australian delegate on the Advisory Committee on Comparative Law established by the American Bankruptcy Institute as part of its Commission to Study the Reform of Chapter 11 of the US Bankruptcy Code. This resulted in a landmark report for the reform of Chapter 11.

He is a published author on insolvency and cross-border insolvency. Most recently, Scott was one of the Australian contributors to the 2015 publication 'International Contributions to the reform of Chapter 11 U.S. bankruptcy code' which is volume 2 of the European and International Insolvency Law Studies series. He also authored the Australian chapter of Avoidance of Antecedent Transactions and Cross-Border Insolvency (INSOL International). Among other publications, he is the co-author, together with Professor Rosalind Mason, of the Australian chapter of Look Chan Ho's leading text: Cross-Border Insolvency: Cases and Materials (Kluwer International).

Scott is a visiting lecturer on cross-border insolvency at the University of Sydney in its undergraduate and postgraduate law programs lead by Professor John Stumbles.

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Anna Simmons

I deeply understand my client's business so I can offer insight and innovative solutions to achieve outcomes that count.

Anna Simmons Senior Associate

Anna is a restructuring and insolvency lawyer specialising in insolvency advice, dispute resolution and financial regulation.

Anna's clients include banks and insolvency practitioners. She advises these clients on dispute resolution, regulatory compliance, enforcement strategies, receiverships, and liquidations.

Anna has extensive experience in advising on various aspects of debt recovery, insolvency and bankruptcy, creditors' remedies, general banking litigation, fraud disputes, misleading and deceptive conduct claims (including valuer negligence) and other forms of dispute resolution. She has worked on a large-scale remediation program, with a focus on regulator engagement.

Anna also presents and writes on insolvency, litigation and recovery matters.

As part of HDY's Pro Bono program, Anna volunteers at Redfern Legal Centre and MOSAIC, a specialist legal service that provides free legal advice to asylum seekers, refugees and newly arrived migrants. Anna is a member of HDYPride, the firm's LGBTIQ support network.

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Claudine Salameh Partner

Claudine has over 15 years' experience dealing with legal issues in the financial services sector.

She is a banking and insolvency litigator and regulatory expert. She acts for the major Australian financial institutions in matters involving customer disputes and litigation, fraud, regulatory and compliance issues, regulatory investigations, inquiries and enforcement matters, security enforcement and insolvency litigation. She also acts for insolvency practitioners in formal receiverships, voluntary administrations and liquidations.

Claudine is well known for her ability to manage risks posed by litigation and regulatory inquiries and investigations. She is particularly attuned to reputational and business risks. She is highly strategic and creative and is recognised by her clients for being able to achieve the perfect balance between legal arguments and commercial and practical outcomes.

Claudine has been instrumental in working with clients to provide insights into the field of behavioural economics, which over the past few years, has been of interest to policy makers and regulators as a tool to engage in 'choice architecture'. On a practical level, Claudine has worked closely with clients to design approaches to customer engagement that make use of behavioural insights.   

Claudine is an expert in the conduct of review and remediation programs and provided assistance to the regulator, by way of submissions and her involvement in an industry working group, on ASIC's regulatory guide on review and remediation programs.

Claudine is very familiar with ASIC's powers to obtain documents and information from financial institutions and is called upon by financial institutions to provide assistance in these matters. She has a style that is conducive to having a fruitful dialogue with both the regulator and the various stakeholders within a financial institution.

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