The Productivity Commission has released its highly anticipated report into the Australian banking industry, with 12 key overviews and recommendations covering competition, trail commission and the appointment of in-house Principal Integrity Officers (PIOs).
Trail commissions earned by mortgage brokers – a point of significant public debate over recent months – feature heavily in the findings.
Recommending trail should be banned and clawback restructured, the report reads, “All brokers, advisers and lender employees who deliver home loans to customers should have a clear legally-backed best interest obligation to their clients.”
The report continues, “In home loan markets, the mortgage brokers who once revitalised price competition and revolutionised product delivery have become part of the banking establishment. Fees and trail commissions have no evident link to customer best interests. Conflicts of interest created by ownership are obvious but unaddressed.”
Further recommendations include the appointment of a Principal Integrity Officer (PIO) who would be obliged by law to “report directly to their board on the alignment of any payments made by the institution with the new customer best interest duty”.
The PIO would also have an obligation to report independently to ASIC in instances in which its board is not responsive.
On the point of competition dynamics in the Australian financial industry, the commission highlighted white label lending and opaque pricing as major issues, describing the industry as promoting an illusion of competition while “persistent marketing and brand activity [is] designed to promote a blizzard of barely differentiated products and ‘white labels’.”
The report continued, “Many of the highly profitable financial institutions have achieved [market power over their competitors] with persistently opaque pricing.”
There are nearly 4,000 different residential property loans on offer in Australia currently and more than 250 different credit cards.
The report follows Treasurer Scott Morrison’s calls for a “new banking era”, which hit headlines earlier today. He is due to comment further on the Productivity Commission’s findings later today.
More to come….
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