There has been historic misconduct within the Australian banking, mortgage and financial service industries – hence a Royal Commission was formed to consider the issues, causes and make recommendations for regulatory change. The final report has now been issued and the recommendations are potentially far-reaching, especially if regulators around the world consider some of the recommendations
It is not unusual for regulators, from all over the globe, to keep under review regulatory changes in other jurisdictions. Risk Committees of lenders and intermediaries regularly ‘horizon scan’ trends in other jurisdictions to ensure that potential regulatory risks to business models are considered and, if necessary, mitigated. As UK regulators potentially loosen direct links to European regulations and look further afield for regulatory harmonisation, risk planning becomes more important than was the case previously.
There are many similarities between the UK and Australian mortgage markets. Sometimes we lead and the Australian market follows, sometimes it is the other way around. Remember how long it took for UK lenders to catch up with the Australian method of calculating mortgage interest on a daily interest basis!
A significant recommendation from the report follows the conclusion that an unfair relationship existed between ‘duty’ (to a client) and ‘self-interest’. As the author, an eminent QC put it, “An intermediary who seeks to ‘stand in more than one canoe’ cannot”. A well reported example of the recommendations was the complete reversal of the way mortgage brokers are paid. As in the UK mortgage brokers receive introductory fees from lenders (although some UK brokers also charge the client a fee), but that will stop in Australia as borrowers will have to pay brokers for the advice and lenders will stop paying fees or trail commission to brokers. Trail commission has only recently gained traction in the UK but has been a feature of the Australian market for years. UK regulators have grappled with the same issues over several decades. The FCA (and the MCCB and FSA before them) have always opted for ‘transparency’ regimes rather than such direct market intervention.
Although there is no current suggestion that the Australian changes will be implemented elsewhere, awareness of moving regulatory trends enables regulatory change risk to be understood and mitigated and will certainly create debate in the UK. The full final report can be accessed on this link. For help with risk planning, give us a call.