Tag: ASIC

ASIC commences civil penalty proceeding against Westpac for poor financial advice

ASIC has commenced proceedings in the Federal Court of Australia against Westpac Banking Corporation in relation to alleged poor financial advice provided by one of its former financial planners, Mr Sudhir Sinha.

In Court documents filed yesterday, ASIC alleges that, in four sample client files selected by ASIC, Mr Sinha breached the ‘best interests’ duty under the Corporations Act (‘the Act’), provided inappropriate financial advice, and failed to prioritise the interests of his clients.

Mr Sinha provided financial advice in the Perth area as an employee of Westpac from 2001 to November 2014.  In June 2017, Mr Sinha was banned by ASIC from providing financial services for a period of five years as a result of his failure to meet his ongoing advice service obligations (refer 17-178MR).

ASIC contends, as Mr Sinha’s responsible licensee during that period, Westpac is liable for the alleged breaches of the ‘best interests’ obligations by Mr Sinha under section 961K of the Act.  ASIC also alleges that Westpac contravened sections 912A(1)(a) and (c) of the Act, which requires Westpac to do all things necessary to ensure that the financial services covered by its licence are provided efficiently, honestly and fairly, and to comply with financial services laws.

Section 961K of the Act is a civil penalty provision, and attracts a maximum penalty of $1 million per contravention.

Separately, Westpac has a significant remediation programme underway in respect of Mr Sinha’s conduct.  Westpac has reported to ASIC that, as at 14 June 2018, it has paid approximately $12 million in compensation to clients impacted by Mr Sinha’s poor advice and ongoing advice service failures.

Bananacoast Community Credit Union pays $50,400 for misleading advertising and provides remediation to consumers

ASIC enforcement action has resulted in four infringement notices totalling $50,400 to Bananacoast Community Credit Union Pty Ltd (BCU) for potentially misleading statements in several online advertisements, as well as remediation to affected consumers.

The advertisements, which ran in 2017, offered a special interest rate for home loans and personal loans but did not clearly or prominently disclose that the consumer was required to pay for consumer credit insurance (CCI) for five years to receive the advertised lower interest rate. Some advertisements included a fine-print disclaimer while others did not display any further information.

The advertisements that did carry a disclaimer did not give suffient prominence to important conditions and did not adequately explain how some of the conditions operated.

ASIC considered that the ‘click through’ facility used on some websites, which provided additional information on other webpages, was not adequate to  correct the misleading overall impression.

ASIC Deputy Chair Peter Kell said, ‘A promotional offer with conditions attached must not bury the conditions in fine print or elsewhere, particularly when the promotion involves a potentially poor value product such as CCI’.

In response to ASIC’s enforcement action, BCU has:

  • Withdrawn the concerning advertising;
  • Offered to cancel the CCI policies and refund the premiums to customers who purchased CCI; and
  • Refunded all premiums paid where the CCI policy had already been cancelled.

The total amount repaid to customers is $91,600 including interest. BCU are also honouring the advertised loan interest rate(s) without the requirement for customers to purchase CCI. BCU has paid the $50,400 penalty.

Read the infringement notices

Background

BCU holds Australian Credit Licence 241077.

CCI is a type of add-on insurance sold with credit cards, personal loans, home loans and car loans. It is promoted to borrowers to help them meet their repayments if they lose their job, become sick or injured or die.

ASIC has taken wide-ranging action in response to CCI sold in different distribution channels, including most recently in car dealerships. In 2016, ASIC released three reports covering its review of the sale of add-on insurance through car dealerships, which found that the insurance is expensive, of poor value and provides consumers very little or no benefit (REP 470, REP 471, REP 492). ASIC subsequently also negotiated over $120 million  in remediation to customers sold these products. See media releases on Allianz, Swann, Suncorp, QBE, Virginia Surety.

ASIC is undertaking a broader review of CCI sales practices by lenders, see 17-255MR Banks to overhaul consumer credit insurance sales processes.  This follows on from ASIC’s Report 256 Consumer credit insurance: A review of sales practices by authorised deposit taking institutions (REP 256) which included a number of recommendations by ASIC, after the review found deficiencies in the areas of sales practices, disclosure, training programs and monitoring. One of the recommendations is that lenders should make a clear statement that the purchase of CCI is optional.

Consumers should think twice before purchasing CCI. ASIC’s MoneySmart website has guidance for consumers so they know what to consider before buying CCI.

ASIC can issue an infringement notice where it has reasonable grounds to believe a person has contravened certain consumer protection laws.

ASIC issued four infringement notices for representations that appeared in various online advertisements through search engine results and webpages, including BCU’s website, during the period 15 August 2017 to 31 October 2017. These infringement notices relate to some, though not all, of BCU’s advertisements used in its OMG Home Loan and Car Loan Special advertising campaigns.

The payment of an infringement notice is not an admission of a contravention of the ASIC Act consumer protection provisions.

ASIC warns consumers about paying high fees for credit repair and debt advice services

ASIC is warning consumers about companies that claim they can fix a poor credit rating. ASIC is running a month-long campaign, with other Commonwealth, state and territory agencies, to help consumers understand that by using credit repair and debt management firms they may end up paying high fees.

Consumers should be aware these companies often fail to fix credit and debt issues, which can leave people in a worse financial situation.

ASIC Deputy Chair, Peter Kell said consumers may not realise that free services exist to help them fix credit reports or resolve their debt problems, such as the National Debt Helpline.

‘Consumers experiencing money or debt problems don’t need to put themselves under further financial stress by paying high fees to firms providing credit repair and debt solution services’, Mr Kell said.

‘If people are having difficulty obtaining loans because of an incorrect default listing on their credit report, there are actions they can take that are free of charge to have it corrected.

‘If you think you have had a credit default wrongly listed against you, contact the creditor and ask for it to be removed.  If you aren’t satisfied with the response you receive you can contact the relevant dispute resolution service for help’, added Mr Kell.

People experiencing debt problems can seek free help and guidance from financial counsellors and the National Debt Helpline on 1800 007 007 or go to ndh.org.au.

In 2016, an ASIC report[1] found debt management firms:

  • were offering services where fees and costs were not well explained;
  • often required payments be made before services were provided;
  • sometimes used high-pressure sales techniques.

Mr Kell suggested consumers can consider alternative services like financial counselling before engaging a debt solutions firm.

Consumers should be aware that lenders will review their credit report when they apply for credit or a loan and they should check their credit history details are correct.  Consumers are entitled to obtain one free copy of their credit report each year from a credit reporting agency.

For more information and guidance on credit repair, free financial counselling services, and managing debt, visit ASIC’s MoneySmart website.

Background

ASIC is the lead Australian Government agency for financial literacy, consistent with its strategic priority and statutory objective to promote confident and informed consumers and investors. ASIC’s financial capability program includes:

  • leading the National Financial Literacy Strategy;
  • providing consumer information via ASIC’s MoneySmart; and
  • delivering ASIC’s MoneySmart Teaching program.

The National Financial Literacy Strategy, led and coordinated by ASIC, is a framework to guide policies, program and activities that aim to strengthen Australians’ financial capability.

In addition to ASIC, other agencies involved in the campaign include the Australian Competition & Consumer Commission (ACCC), Consumer Affairs Victoria, NSW Fair Trading and the Queensland Office of Fair Trading.

The Federal Court recently found, in proceedings brought by ASIC, that credit repair business Malouf Group Enterprises Pty Ltd and its director Jordan Francis Malouf breached the Australian Consumer Law by making false and misleading representations and engaging in unconscionable conduct. In addition to penalties imposed by the Court, the Malouf Group will pay $1.1 million to consumers (refer: 18-114MR).

Free financial services available to consumers

Financial Counselling

Financial counselling is a free service offered by community organisations, community legal centres and some government agencies.  Financial counsellors can help consumers solve their money problems.

National Debt Helpline

The free hotline – 1800 007 007 – is open from 9:30am to 4.30pm, Monday to Friday (opening hours can differ in different states) to help consumers struggling with debt.  Consumers can visit the National Debt Helpline website for information and resources.

The Department of Agriculture runs a Rural Financial Counselling Service to support primary producers, fishermen and small rural businesses that are suffering financial hardship, for further details call 1800 686 175.

ASIC’s MoneySmart website provides a financial counsellor online search tool to locate a financial counsellor near you.

External Dispute Resolution (EDR) services

A credit repair company may offer to contact an External Dispute Resolution (EDR) service to resolve a consumer case.  The company could charge a fee, even though those services are free and are designed to be easy for people to use.  Consumers can save time and money by contacting an Ombudsman directly, rather than going through a credit repair company.

Credit and financial services EDR schemes

Financial Ombudsman Service (FOS) – 1800 367 287

FOS handles complaints about banking, credit, loans and debt collection, life insurance, superannuation, financial planning, insurance broking, stockbroking, investments, managed funds, timeshares, general insurance, finance and mortgage broking.  They do not deal with complaints about compulsory third party, private health, public liability and workers’ compensation insurance.

Credit and Investments Ombudsman (CIO) – 1800 138 422

CIO handles complaints about credit unions, building societies, non-bank lenders, mortgage and finance brokers, financial planners, lenders and debt collectors, credit licensees and credit representatives.

Other dispute resolution services

Energy, water and telecommunication ombudsman services provide free advice and conciliation services for consumers with complaints about providers in those industries.

Westpac Dodges Rate Rigging Charges

The Federal Court has determined ASIC failed to prove Westpac manipulated the bank bill swap rate, but the judge found the bank engaged in unconscionable conduct, via InvestorDaily.

Justice Beach of the Federal Court has handed down a 643-page judgement on a civil court case brought by ASIC that alleged Westpac manipulated the bank bill swap rate (BBSW).

In his judgement, Justice Beach found ASIC has “not made out its case against Westpac” concerning market manipulation or market rigging.

However, he did find that Westpac engaged in unconscionable conduct under s12CC of the ASIC Act on four occasions (6 April 2010, 20 May 2010, 1 and 6 December 2010) “by trading Prime Bank Bills in the Bank Bill Market with the dominant purpose of influencing yields and where BBSW is set”.

Westpac was also found to have contravened paragraphs 912A(1)(a), (c), (ca) and (f) of the Corporations Act, which relate to the obligations of financial services licensees to operate efficiently, honestly and fairly.

ASIC did not make out its case in respect to any of its other claims, said the judgement.

In his summary, Justice Beach said Westpac had failed to take “reasonable steps” to ensure its representatives did not engage in trading in Prime Bank Bills with the “sole or dominant purpose of manipulating the BBSW”.

“Further, in my view Westpac failed to ensure that its traders were adequately trained not to engage in trading with such a sole or dominant purpose,” said the judgement.

“This should have been reinforced and stipulated to them orally and in writing. In those circumstances, Westpac also contravened s 912A(1)(f).”

Cash Converters pays $650,000 due to poor debt collection practices

ASIC says an ASIC surveillance found that Cash Converters Personal Finance Pty Ltd (‘Cash Converters’) had systematically failed to meet regulatory guidelines on debt collection practices, including by too frequently contacting consumers.

ASIC found that as a result of poor internal controls and policies Cash Converters routinely breached Regulatory Guide Debt collection guideline: for collectors and creditors (RG 96), which recommends that consumers be contacted regarding a debt not more than three times per week or 10 times per month. These guidelines are based on legislative prohibitions on harassment and coercion.

Cash Converters also provided incorrect information to consumer credit reporting agency Equifax. This may have resulted in up to 38,500 customers being reported with inaccurate amounts owing over a one-month period.

In response to ASIC’s concerns, Cash Converters is outsourcing all debt collection work to a specialist third party debt collector. ASIC has also imposed licence conditions on Cash Converters to require it to obtain ASIC’s consent before returning debt collection activity in-house. Cash Converters has also worked with Equifax to ensure all incorrect credit listings have been removed.

The company has paid a $650,000 community benefit payment to help fund the National Debt Helpline. The Helpline assists consumers who have trouble managing debt or paying bills.

ASIC Deputy Chair Peter Kell said, ‘Consumers expect to be treated fairly and in a manner that complies with consumer protection laws. ASIC expects all financial service providers to have appropriate systems and controls in place to ensure that debt collection practices are consistent with the Guidelines. It is also critical that licensees ensure that credit information provided to credit bureaus is accurate.’

Consumers seeking assistance can contact the National Debt Helpline on 1800 007 007.

Background

Safrock Financial Corporation (Qld) Pty Ltd, a related company to Cash Convertors, was responsible for providing the incorrect information to consumer credit reporting agency Equifax. The credit listings indicated the total amount of the debt owing by consumers, rather than the outstanding balance.

ASIC has issued Regulatory Guide RG 96 Debt collection guideline: for collectors and creditors setting out guidance to help creditors who are directly involved in debt collection and specialist external agencies who provide debt collection services to comply with their legal obligations under Commonwealth consumer protection laws.

The National Debt Helpline, coordinated by Financial Counselling Australia, is a not-for-profit service that assists consumers in managing debt.  Approximately half of the calls received by the Helpline involve debt collected by a debt collection agency.  The volume of calls for the Helpline has increased each year since the inception of the Helpline in 2012.  The Helpline currently receives, on average, over 14,000 calls per month.

ASIC’s MoneySmart website has information about dealing with debt collectors, including how and when they can contact consumers. MoneySmart also provides guidance for consumers about checking and correcting any wrong listings on their credit report.

Federal Court finds Westpac traded to affect the BBSW and engaged in unconscionable conduct

ASIC says Justice Beach of the Federal Court today found that Westpac engaged in unconscionable conduct under s12CC of the Australian Securities and Investments Commission Act 2001 (Cth) by its involvement in setting the bank bill swap reference rate (BBSW) on 4 occasions.

In civil proceedings brought by ASIC, the Court found that on these occasions, Westpac traded with the dominant purpose of influencing yields of traded Prime Bank Bills and where BBSW set in a way that was favourable to its rate set exposure.

The court also found Westpac had inadequate procedures and training and had contravened its financial services licensee obligations under s912A(1)(a), (c), (ca) and (f) of the Corporations Act 2001 (Cth)

His Honour said in his judgement, “Westpac’s conduct was against commercial conscience as informed by the normative standards and their implicit values enshrined in the text, context and purpose of the ASIC Act specifically and the Corporations Act generally.”

A further hearing of this proceeding on penalty and relief will be held on a date to be determined.

Background

ASIC commenced legal proceedings in the Federal Court against the Australia and New Zealand Banking Group (ANZ) on 4 March 2016 (refer: 16-060MR) and against National Australia Bank (NAB) on 7 June 2016 (refer: 16-183MR).

On 10 November 2017, the Federal Court made declarations that each of ANZ and NAB had attempted to engage in unconscionable conduct in attempting to seek to change where the BBSW was set on certain dates and that each bank failed to do all things necessary to ensure that they provided financial services honestly and fairly. The Federal Court imposed pecuniary penalties of $10 million on each bank (refer: [2017] FCA 1338).

On 20 November 2017, ASIC accepted enforceable undertakings from ANZ and NAB which provides for both banks to take certain steps and to pay $20 million to be applied to the benefit of the community, and that each will pay $20 million towards ASIC’s investigation and other costs (refer: 17-393MR).

On 30 January 2018, ASIC commenced legal proceedings in the Federal Court against the Commonwealth Bank of Australia (CBA) (refer: 18-024MR).

On 8 May 2018, CBA announced that ASIC and CBA reached an in-principle agreement to settle ASIC’s claims (refer: CBA ASX Announcement). CBA and ASIC will be making an application to the Federal Court for approval of the settlement.

ASIC has previously accepted enforceable undertakings relating to BBSW from UBS-AG, BNP Paribas and the Royal Bank of Scotland (refer: 13-366MR, 14-014MR, 14-169MR). The institutions also made voluntary contributions totaling $3.6 million to fund independent financial literacy projects in Australia.

In July 2015, ASIC published Report 440, which addresses the potential manipulation of financial benchmarks and related conduct issues.

On 28 March 2018, Parliament passed legislation to implement financial benchmark regulatory reform.

On 21 May 2018, the new BBSW calculation methodology commenced, calculating directly from market transactions during a longer rate-set window and involving a larger number of participants. This means that the benchmark is anchored to real transactions at traded prices (refer: 18-144MR).

Fox Symes pays $37,800 for misleading advertising

ASIC has issued three infringement notices to debt management firm Fox Symes and Associates Pty Ltd (Fox Symes) for making potentially misleading statements in its advertising. The company has paid a total of $37,800 in penalties.

ASIC took action against Fox Symes after it made a number of potentially misleading representations in banner advertisements, Google ads and on its website. These representations included ‘Free Debt Assistance’,‘Reduce Debt in Minutes’ and ‘15sec Approval’.

ASIC was concerned that such statements misrepresented the cost and speed of Fox Symes’ debt management services.

ASIC Deputy Chair Peter Kell said ‘Debt management firms are often engaging with particularly vulnerable consumers who are seeking assistance with their debts. They should be careful not to misrepresent their services using high impact terms like ‘free’, ‘minutes’ and ‘seconds’ suggesting that debt assistance will be quick and at no cost.’

Background

‘Free Debt Assistance’ appeared in a banner advertisement and on the Fox Symes website. Fox Symes did not disclose to consumers that there was a limit to the ‘free debt assistance’ and that charges apply for most of Fox Symes’ services. The ‘free’ component referred to the initial first phone consultation.

‘Reduce debt in minutes’ appeared in banner advertisements. As Fox Symes’ services generally require engagement with third parties, a reduction in debt cannot feasibly be achieved in minutes, seconds or any other similar short period of time.

‘15sec approval’ appeared in Google paid Adword results. Where Fox Symes provides credit services, the responsible lending requirements under the National Consumer Credit Protection Act 2009 (Cth) apply. Approval could not be provided within such short timeframes.

Fox Symes voluntarily amended its advertising once ASIC raised its initial concerns.

Fox Symes is the holder of Australian Credit Licence 393 280 which authorises it to engage in credit activities other than as a credit provider.

Fox Symes was issued with three infringement notices for the representations. Each infringement notice was for a penalty of $12,600.

The payment of an infringement notice is not an admission of a contravention. ASIC can issue an infringement notice where it has reasonable grounds to believe a person has contravened certain consumer protection laws.

ASIC and RBA welcome the new BBSW calculation methodology

ASIC and the Reserve Bank of Australia (RBA) have welcomed the new BBSW calculation methodology, which commenced today.

The bank bill swap rate (BBSW) rate is a major interest rate benchmark for the Australian dollar and is widely referenced in many financial contracts. Previously, BBSW was calculated from the best executable bids and offers for Prime Bank securities. A major concern over recent years has been the low trading volumes during the rate-set window, the period over which the BBSW is measured.

The new BBSW methodology calculates the benchmark directly from market transactions during a longer rate-set window and involves a larger number of participants. This means that the benchmark is anchored to real transactions at traded prices. ASX, the administrator of BBSW, has consulted market participants on this new methodology. In addition, the ASX has recently conducted a successful parallel run of the new methodology against the existing method.

RBA Deputy Governor Guy Debelle said, ‘The new methodology strengthens BBSW by anchoring the benchmark to a greater number of transactions. This should help to ensure that BBSW remains robust.’

ASIC Commissioner Cathie Armour said, ‘A transaction-based BBSW supports the market’s trust in the robustness and reliability of BBSW.’

‘ASIC and the RBA expect all bank bill market participants – including the banks that issue the bank bills, as well as the participants that buy them – to adhere to the ASX BBSW Guidelines and support the new BBSW methodology. The rate-set window is the most liquid period in the bank bills market, and market participants are therefore likely to get the best outcomes for their institutions and their clients by trading during this time.’

‘We expect market participants to put in place procedures so that as much trading as possible happens during the rate-set window.

This change follows passage through the Parliament in March of legislation that puts in place a framework for licensing benchmark administrators. Consistent with the approach taken in a number of other jurisdictions, it also made manipulation of any financial benchmark, or products used to determine such a benchmark, a specific offence and subject to civil and criminal penalties.

ASIC intends shortly to make financial benchmark rules, on which ASIC consulted in 2017. ASIC also expects to declare BBSW, and a number of other financial benchmarks, as ‘significant benchmarks’ in Australia and to license the administrators of those significant benchmarks.

Financial system under ‘great threat’: ASIC

From Investor Daily.

The failures within the banking sector uncovered by the royal commission constitute a “great threat” to the financial system, says ASIC chairman James Shipton.

Speaking at the Australian Council of Superannuation Investors conference in Sydney yesterday, Mr Shipton was asked how seriously he was taking the threat to the financial system given the failures aired at the royal commission.

“I think the threat is great. As a former member of the finance profession – as a person who is proud to be a financier – I find it jarring and disappointing that this is [sic] circumstances in which we find ourselves,” he said.

“As a proud Australian who is returning from nearly 25 years overseas, it is very confronting that we find ourselves in this situation,” Mr Shipton said.

The misconduct discussed at the royal commission “must not stand, [it] must be addressed”, he said.

Mr Shipton also highlighted the “proliferation” of conflicts of interest in parts of the financial industry.

“It is clear to me that a number of institutions have not taken the management of conflicts of interest to heart,” he said.

“This is verging on a systemic issue. Indeed, it is the source of much of the misconduct ASIC has been responding to and which is being highlighted by the royal commission hearings.”

Mr Shipton expressed his “surprise” that many Australian firms have “turned a blind eye” to conflicts of interest as their businesses have grown.

“Too often, unacceptable conflicts were justified by firms on the basis that ‘everyone else is doing it’, even though it’s the right thing to do to end them.

“A business culture that is blind to conflicts of interest is a business culture that does not have the best interests of its customer in mind. Moreover, it is one that is not observing the spirit as well as the letter of the law,” he said.

‘Conflicted’ remuneration should go: ASIC Chair

From The Adviser.

The new chairman of the ASIC has said that he has been “surprised” that there has been “reluctance, and often resistance, to addressing conflicts, especially those embedded in remuneration” – highlighting the broker remuneration report.

Speaking at the Australian Council of Superannuation Investors Annual Conference on Thursday (17 May), the chairman of the Australian Securities and Investments Commission (ASIC) told delegates that he had been “surprised” by several themes and issues in the financial services sector since taking up the helm of the regulator three months ago.

In his speech, ASIC chair James Shipton said: “My concern is that many people in finance have lost sight of the ultimate purpose of the financial system; they have forgotten that this system is about managing other people’s money…

“I worry that many financial services companies have become insular by focusing only on how they can maximise earnings.

“Accordingly, the first job of the sector is to refocus on these core purposes, instead of exploiting opportunities to make money from its customers often to the consumer’s considerable detriment. This is exemplified by the proliferation of conflicts of interest in parts of the financial sector.”

Noting that conflicts are a “perennial challenge for business”, he added that it was “clear” to him that a number of institutions “have not taken the management of conflicts of interest to heart”.

Mr Shipton said: “This is verging on a systemic issue. Indeed, it is the source of much of the misconduct ASIC has been responding to and which is being highlighted by the Royal Commission hearings.

“The inappropriate sale of financial products in caryards by a commission-driven salesforce is but one example that ASIC has tackled in recent times. And yet conflicts of interests are not new.

So, what has surprised me is that:

  • many Australian financial firms have turned a blind eye to the risks that conflicts pose to customer outcomes as their businesses evolved or grew;
  • they didn’t have a management system, a management culture, or codes that were attuned to identifying and resolving conflicts; and
  • there has been reluctance, and often resistance, to addressing conflicts, especially those embedded in remuneration – even when ASIC pointed them out.”

According to Mr Shipton, this “resistance has, at times, extended to a reluctance to make good any harms caused by conflicts”.

He continued: “Too often, unacceptable conflicts were justified by firms on the basis that ‘everyone else is doing it’, even though it’s the right thing to do to end them.

“A business culture that is blind to conflicts of interest is a business culture that does not have the best interests of its customer in mind. Moreover, it is one that is not observing the spirit as well as the letter of the law.

“And so, it is time for Australia’s financial services sector to remember its purpose – and remember always that they are dealing with other people’s money; it must focus on the outcomes it delivers to its customers.”

Mr Shipton therefore called for a “wholesale review by firms to identify, manage and, if appropriate, remove every conflict.

“Only when this is done can the journey of rebuilding trust with our communities begin,” he said.

Looking back at removing ‘conflicted’ broker commissions

While he said that ASIC favours this option in relation to conflicted payments in advice, he highlighted how the ASIC review of broker remuneration highlighted the “desirability of removing at least some of the remuneration-related conflicts in this sector”.

The new ASIC chair said: “In recent years, the Australian Parliament has banned commissions and other conflicted payments in financial advice. This was a recognition that the best way to deal with some conflicts was not to manage or disclose them, but to remove them altogether.

“This is an option that ASIC favours in relation to conflicted payments in advice. There can be no ambiguity in this area. So, I would strongly suggest that all financial firms keep this in mind when considering how to deal with conflicts of interest arising from remuneration structures.

“We have, for example, in our report on mortgage broker remuneration, highlighted the desirability of removing at least some of the remuneration-related conflicts in this sector.”

While the ASIC report suggested that volume-based and bonus commissions could create conflicts, and should be removed (a suggestion that the industry has largely accepted and is working on implementing, via the Combined Industry Forum), the report did also conclude that the standard model of upfront and trail commissions “creates conflicts of interest”.

ASIC’s report 516: “This standard model of upfront and trail commissions creates conflicts of interest. There are two primary ways in which these conflicts may become evident.

“Firstly, a broker could recommend a loan that is larger than the consumer needs or can afford to maximise their commission payment. This may also involve recommending a particular product or strategy to maximise the amount that the consumer can borrow (e.g. through the choice of an interest-only loan)…

“Alternatively, a broker could be incentivised to recommend a loan from a particular lender because the broker will receive a higher commission, even though that loan may not be the best loan for the consumer. We refer to this as a ‘lender choice conflict’,” the report read.

The ASIC remuneration review did not, however, suggest radically changing the commission structure.

It put forward six proposals to improve consumer outcomes and competition in the home loan market, including:
(a) changing the standard commission model to reduce the risk of poor consumer outcomes;
(b) moving away from bonus commissions and bonus payments, which increase the risk of poor consumer outcomes;
(c) moving away from soft dollar benefits, which increase the risk of poor consumer outcomes and can undermine competition;
(d) clearer disclosure of ownership structures within the home loan market to improve competition;
(e) establishing a new public reporting regime of consumer outcomes and competition in the home loan market; and
(f) improving the oversight of brokers by lenders and aggregators.

While no response from government has yet been made regarding what changes, if any, should be made to broker remuneration, it is largely expected that no such response will be made public until the royal commission and Productivity Commission conclude their work on the financial services sector.