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A bank CEO has urged caution over changing regulation at his hearing in the Royal Commission.
Two bank bosses faced questions at the hearing yesterday (22 November) and both seemed to oppose a ban on trail commission, unlike Commonwealth Bank CEO Matt Comyn on Monday.
Brian Hartzer, CEO of Westpac, continued his testimony in the seventh round of public hearings from the day before, with less time spent discussing the mortgage broker network than his counterparts.
Counsel assisting Michael Hodge QC asked whether Westpac opposed a ban on trail, to which Hartzer simply replied, “yes”.
CEO of Macquarie, Nicholas Moore, was questioned more thoroughly on mortgage brokers, and backed up brokers’ service to customers and ability to ensure competition.
Asked about his concern of changing the current structure, Moore reiterated the warning of “unintended consequences”, which has been repeated numerous times by people in the broking industry.
Hodge asked a series of questions to confirm what Macquarie thought about brokers, including asking about the banks’ share of the home loan market.
Moore admitted that without brokers Macquarie would not be able to compete with the major banks and that its direct channel only accounted for around 10% of its home loan business.
Hodge asked, “What I then want to understand is what is the concern that Macquarie has about how changing commissions might affect the ability of mortgage brokers to provide that service to the non-major lenders?”
Moore replied, “We're dealing a little bit about potential regulation we don't know the shape of. And our general point is one of caution to say there can be unintended consequences of regulation.
“We are dependent upon this broker network for our business. And we think, having regard to history, that the broker network does provide genuine competition, and that genuine competition has reduced the cost for all mortgages.
“So our nervousness would be regulation could severely hamper that broker business, and so we're providing a note of caution in terms of any thoughts about changing the regulatory structure that people think broadly about what the implications may be.”
Hodge asked a number of questions about why the banks would offer brokers lower rates when it means potentially taking business away from their own direct channels.
Hodge asked, “The point I'm trying to get at is it can be suggested that if there isn't a lower rate being offered by a mortgage broker compared to what is available by direct origination that it therefore means that the broker is failing to do the broker's job, but that, I'm suggesting, is not necessarily the case. And I'm interested in your view about that?”
After stating that he did not really understand Hodge’s point, Moore replied, “The point of the broker or the market more broadly is to be bringing to light the different offers which change. And its offers not just in terms of price but terms and conditions as we know with long-term commitments are often even more important.
“And showing people the way through these situations. And it's not just the upfront price but all the other circumstances around it is an important function. So I see the broker providing a market role in terms of being able to provide the different offers, different offers to the client base.”
Hodge then asked about what the consequence would be of not paying commission to brokers. Moore said, “Obviously, we would be speculating but superficially, it would not be - it doesn't sound as attractive as the - as the current structure.”
Commissioner Kenneth Hayne then asked for clarification as to who it would not be attractive to.
Moore said, “I think the expression used is the stick of shock of actually seeing the upfront fee. One of the other issues discussed is whether the fee should be upfront or over the life.
“And our position is we would like it, coming back to the alignment point, to reflect the value being delivered which is over the life of the loan.
“So there is an issue, obviously, if you have an offer without a broking fee versus with a broking fee, that makes a difference in the mind of the consumer.”
