Treasury releases final regulation on conflicted remuneration

A "significant milestone" according to the MFAA, "nothing new" as seen by the FBAA

Treasury releases final regulation on conflicted remuneration


By Madison Utley

Earlier this week, Treasury released the finalised version of the regulations which will dictate mortgage broker remuneration as of 1 January 2021, following on from the release of the draft Regulations and Explanatory Statement in August 2019.

The new regulations come in response to recommendation 1.3 of the royal commission and are intended to clarify which benefits received by mortgage brokers are considered conflicted remuneration, as well as to provide guidance on when conflicted remuneration must not be accepted or given.

The MFAA welcomed the finalised regulation, with CEO Mike Felton celebrating the government’s “commitment to consultation” and ongoing engagement with the industry, and informing members a positive outcome had been achieved on “the majority of the key issues regarding remuneration”.

While the association acknowledged some work remains to be done, such as around non-mortgage credit which sees conflicted remuneration provisions apply to all of a mortgage broker’s credit assistance, irrespective of whether the credit is secured by a mortgage over residential property, Felton’s address to MFAA members was predominantly positive. 

Highlighting several major issues resolved over the period of consultation such as when the drawdown period commences, the number of days for the offset to be drawn and potential limitations among others, Felton dubbed the finalised regulation “a significant milestone” for the industry. 

“This…reflects both the maturity and professionalism of mortgage broking, but also the importance of our industry to our economy,” he said in a letter distributed to MFAA members earlier this week.

“We have assisted to shape legislation and regulations that will result in even greater differentiation, trust and confidence for the mortgage broker channel, and protect consumer outcomes and our remuneration structures as we work towards the impending review of mortgage broker remuneration by the Council of Financial Regulators and the ACCC in 2022.”

According to FBAA managing director Peter White AM, the finalised regulation brought “nothing new” to the conversation around conflicted remuneration, as it did not deviate from the details the Treasurer shared in the draft materials last year. 

While White, too, voiced appreciation that the government has listened to the concerns of the industry on many issues regarding remuneration, he believes the current state of clawbacks remains unacceptable; however, he made sure to clarify the onus to deliver change moving forward should be on lenders, not the government.

“The road with the government on clawbacks was dead late last year, but the fight to bring balance and fairness to the system is very much alive,” he said.  

“Clawbacks are exactly the same as they were before the royal commission, and now it’s up to lenders to amend their terms.

“Who will be the first bank to do the right thing by brokers and reduce clawbacks to 12 months or less?”

White reiterated that lenders possess the ability to amend their own terms, with several having already done so with their franchise operations.

“If a bank can offer a franchise zero clawback after 12 months, why can’t they offer it to the broking channel, which brings in such a high percentage of their business?” he asked.

Saying the “battle is far from over”, White assured brokers the FBAA will continue campaigning for change until brokers are given “a fair go”.

“We’ve achieved a lot over the last couple of years for the industry and I believe that our unwavering commitment to see justice done will eventually see results in this area too,” he finished.

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