The Morrison Government is releasing exposure draft legislation today that will improve outcomes for consumers by introducing a best interests duty for mortgage brokers and reforming mortgage broker remuneration.
Recommendation 1.2 of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry recommended that mortgage brokers be required to act in the best interests of the consumer, where a breach of this duty should be subject to a civil penalty.
Consistent with the announcement last week, the Morrison Government is committed to implementing the Royal Commission’s recommendations swiftly and the release of this exposure draft legislation is another important step in delivering on this commitment.
Mortgage brokers play an important role in promoting good consumer outcomes and competition in the home loan market. Mortgage brokers have a strong presence in the home loan market accounting for close to 60 per cent of home loans.
The implementation of the best interests duty will bring the law in line with what consumers expect of mortgage brokers.
In response to Recommendation 1.3, the Government agreed to reform mortgage broker remuneration. This will be done by requiring the value of upfront commissions to be linked to the amount drawn down by borrowers instead of the loan amount; banning campaign and volume-based commissions and payments; and capping soft dollar benefits.
In addition, we will limit the period over which commissions can be clawed back from aggregators and mortgage brokers to two years and prohibit the cost of clawbacks being passed on to consumers.
Remuneration structures for mortgage brokers, including upfront and trail commissions, will be reviewed in three years’ time by the Council of Financial Regulators and the Australian Competition and Consumer Commission (ACCC).
The Government’s actions will deliver better outcomes for consumers, while continuing to promote competition. The Government is taking action on all 76 recommendations contained in the Final Report of the Royal Commission and will continue to take the necessary steps to restore trust in Australia’s financial system.
The exposure draft legislation is available on the Treasury website.