Annie Kane| 12 March 2019| The Adviser
Treasurer Josh Frydenberg has said that the government will look at reviewing the impacts of removing trail in three years’ time rather than abolishing it next year as originally announced, following concerns regarding competition.
In an announcement on Tuesday (12 March), Treasurer Josh Frydenberg said that “following consultation with the mortgage broking industry and smaller lenders, the Coalition government has decided to not prohibit trail commissions on new loans but rather review their operation in three years’ time”.
The review, to be undertaken by the Council of Financial Regulators and the Australian Competition and Consumer Commission will therefore look at both the impacts of removing trail as well as the feasibility of continuing upfront commission payments.
Both the abolition of trail and upfront commissions were recommended by commissioner Hayne in his final report for the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
While the government had initially said in its official response to the final report that it would ban trail commission payments for new mortgages from 1 July 2020, the Treasurer has now said that the removal on trail will instead be reviewed in three years’ time.
“Mortgage brokers are critically important for competition and delivering better consumer outcomes in the mortgage market. Almost 60 per cent of all residential mortgages are settled by mortgage brokers,” Mr Frydenberg said on Tuesday.
“There are 16,000 mortgage brokers across Australia – many of which are small businesses – employing more than 27,000 people. The government wants to see more mortgage brokers, not less,” he said.
The Treasurer added that ASIC’s 2017 review of broker remuneration “did not identify trail commissions as directly leading to poor consumer outcomes and did not recommend the removal of trail commissions”.
“Only the government can be trusted to protect the mortgage broking sector and ensure that competition is strengthened so consumers get a better deal,” he said.
Mr Frydenberg added that the government was “taking action on all 76 recommendations contained in the final report” of the banking royal commission and had already announced a number of new measures that will be brought in, including:
- a best interests duty that will legally obligate mortgage brokers to act in the best interests of consumers
- a new requirement that the value of upfront commissions be linked to the amount drawn down by consumers
- a ban on campaign and volume-based commissions
- a two-year limit on commission clawbacks
“These changes will address conflicts of interest in the industry by better aligning the interests of consumers and mortgage brokers,” Treasurer Frydenberg said.