Former auditor-general Mr Ian McPhee AO PSM, released his fifth progress report yesterday into the Australian Bankers’ Association’s (ABA) package of six initiatives to “better protect consumer interests, increase transparency and accountability, and build trust and confidence in banks.”
Announced in April 2016, the reforms include:
The latest progress report into the ABA’s reform programme states that the changes are “starting to gain traction” but that industry “still need[s] to see more rubber on the road”.
Self-regulatory response to change mortgage broking remuneration
Touching on the first initiative into remuneration, Mr McPhee noted that the Mortgage Industry Forum had been established to “discuss the potential impacts of both the [Sedgwick] Review and ASIC’s review of mortgage broker remuneration” and had met twice.
He writes: “A second meeting of the Forum was held on 18 July 2017, which allowed the mortgage industry to continue to identify appropriate strategies for progressing changes to payments and governance arrangements.
“The ABA has advised it believes this Forum will be an important vehicle for the mortgage industry to work together on these reforms and in consultation with regulators.”
Mr McPhee added that the ABA notes that “both [the] representatives from mortgage brokers and the Finance Sector Union have an expectation that any reforms will happen on an aligned basis across the industry, suggesting that further consultation will be required before positions can be settled”.
He emphasised that ABA’s response to Treasury regarding ASIC’s review of mortgage broker remuneration suggested that there was “a significant opportunity for the mortgage industry, in consultation with government and subject to any necessary regulatory approvals, to develop a self-regulatory response to change payments and governance arrangements in mortgage broking that will manage risks to consumers and promote better consumer outcomes”.
Mr McPhee continued: “Based on advice from participant banks, there are a range of views on the merits of the industry proceeding with the development of guiding principles on remuneration, given the recommendations of the Sedgwick Review, the work by individual banks to develop their own remuneration principles and the review being undertaken by APRA which is expected to give consideration to remuneration principles applying to the industry.
“Given the significance of this issue and the profile which remuneration has for the industry, it is clearly desirable for the industry to settle its position in relation to this matter and reflect it as appropriate in the ABA’s implementation plan. Should the industry decide not proceed with the guiding principles then a clear basis for the decision should be articulated, consistent with the approach for previous variations to the implementation plan.”
In conclusion, Mr McPhee wrote that the reform program is "well advanced" with many initiatives having moved from design to implementation phases, but added that "while there is still work to be done to complete some of the measures, the focus going forward will increasingly be on the efforts of individual banks to embed the reform measures to the extent required to deliver on the goals of the six industry initiatives".
The ABA has welcomed the report, with its executive director of retail policy, Diane Tate, saying: “If the industry’s reform program is to be successful, bank customers must be able to experience improvements themselves…
“It is important that the industry increases awareness with customers and the broader community about how they will benefit from the improvements banks are making, and also that we’re able to measure success effectively,” she said.
She added: “It is encouraging that we’re seeing early signs of customers benefiting from these changes, but banks realise there is much more work to be done.”
Mr McPhee’s next report is expected by 21 October 2017.
[Related: Banks commit to further industry reforms]
Annie Kane is the editor of The Adviser and Mortgage Business.
As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts.