Banks cannot just ‘cut and paste’ broking industry reforms

At a Combined Industry Forum (CIF) event in Melbourne on Monday (10 September), members of the forum were questioned as to whether banks will be implementing the same changes that mortgage brokers will be required to adopt once the CIF finalises its mortgage broking industry code of conduct.

The question follows years of scrutiny of the mortgage broking industry, with many contending that brokers are being blamed for and burdened by the irresponsible lending practices highlighted throughout the financial services royal commission hearings.

In response, Christine Cupitt, executive director of policy at the Australian Banking Association (ABA), admitted that when it comes to the proposed “customer first duty” — and the possible “conflicts priority rule” requiring brokers to prioritise their customer’s interests — parts of the mortgage broking industry code of conduct would also be relevant to frontline bank staff.

However, she pointed out that “it’s not a matter of cut and paste between the CIF commitments and what would happen in the proprietary channel” and that the ABA’s recently updated Code of Banking Practice already addresses many concerns around the banks’ lending practices.

The ABA last month said that the new banking code “represents a stronger commitment to ethical behaviour, responsible lending, greater financial protection and increased transparency”.

“The banking industry has done a lot of work on its commitment to customers through the new banking code of practice. There [are] different remuneration structures and settings that apply in retail branches which have been modified in response to the Sedgwick [review],” Ms Cupitt said.

“There’s a very different monitoring and control environment in a branch or on the phone and there’s a very different set of customer expectations and a different value proposition between the broker channel and [the] proprietary [channel],” she added.

Anthony Waldron, executive general manager of broker partnerships at the National Australia Bank, noted that the CIF’s charter is to iron out the kinks in the broking industry and thus does not have the authority to explore reforms beyond that.

“There is considerable work being done under the ABA and with each of the banks and the Productivity Commission did talk to there being some form of interest duty across all lenders. But at this stage that it’s still only a proposal… there’s a long way to go on that component but the ABA [is] taking that up with the lenders,” he said.

The comments follow on from those made last month by the head of aggregation group FAST, a member of the CIF, which suggested that the customer first duty could be extended across the finance industry, rather than being solely focused on brokers.

Speaking during The Adviser’s webcast, Responsible lending: Has the game changed?, FAST CEO Brendan Wright responded to a question from a broker watching the webcast named “Nicki”, who asked: “The CIF good customer outcome, why is this not an industry standard across ALL platforms? Why are brokers the only platform being lopped with this?”

In response, Mr Wright said: “That’s a great question… let’s see what plays out, to be honest. [With] the Combined Industry Forum, the longer-term strategy is to turn what’s coming out of that initiative into a code. And I suppose where Nicki is getting to, is to apply the same thing to lenders in branches or banks, for example, and other industries. It would be fair to say, watch this space. 

“This industry is taking a leadership position and particularly learning from what happened in the wealth space. That industry did not work together as an industry to solve for what needed to be solved for; mortgage and finance broking industry learnt from that and so that is an example of how, by taking a leadership position, you can change the game in a positive way and a long-term way.

“So, watch this space would be my answer to that and I think it will play on beyond our industry.”

Indeed, the CIF progress report outlined that a workstream is working on developing a mortgage broking industry code, which is expected to be in place by the end of 2018, and hinted about this being extended to “include new participants over time”.

Mr Wright later told the webcast audience that the CIF’s “leadership position will continue to make a difference and it will play across elsewhere in financial services and beyond”.

[Related: ABA calls for banking code to be adopted by non-banks]