Treasurer Josh Frydenberg announced yesterday that the Government would not proceed with its plan to prohibit trail commissions on broker mortgage sales and has deferred any decision on the controversial issue for three years.
The Hayne Royal Commission recommended that commissions paid by lenders to mortgage brokers be banned and that brokers be remunerated by charging borrowers fees.
In its initial response to the Royal Commission report, the Government said it would ban trail commissions on new loans from July 2020, with a review in three years to look at removing upfront commissions and moving to a borrower pays remuneration structure.
The Government also said it would require mortgage brokers to act in the best interests of clients.
In a statement released yesterday, Frydenberg says the review to be done in three years’ time will be conducted by the Council of Financial Regulators and the Australian Competition and Consumer Commission.
The Government will go ahead with plans to introduce a best interests duty for brokers. It will also require that upfront commissions be linked to the amount drawn down by borrowers and not the amount approved.
It will ban campaign and volume-based commissions and will set a two-year limit on commission clawbacks.
Frydenberg says: “Mortgage brokers are critically important for competition and delivering better consumer outcomes in the mortgage market.”
Labor has also rejected the Hayne’s broker remuneration recommendations. Having initially said it supported all the Hayne recommendations, it has since come up with a proposal that commissions would be standardised and capped.
Labor says it will introduce a best interests duty for brokers and over time it will align regulation of brokers with regulation of advisers.
The Government and Labor have wilted under the pressure of industry lobbying, despite ample evidence from the Royal Commission, the Productivity Commission and the Australian Securities and Investment Commission that mortgage brokers do little to create competition, do not secure better rates for their customers and do not provide a better service.