Industry bodies examine need for new consumer scheme
The government has confirmed it is pushing through two recommendations in response to the Hayne Royal Commission into the finance industry, both of which are designed to protect consumers of financial products and services.
The recommendations are aimed at strengthening Australia’s financial system and are in direct response to some of the revelations of the Royal Commission.
The first recommendation, a Financial Accountability Regime (FAR) is aimed at making executives of financial institutions more accountable. The second, a Compensation Scheme of Last Resort (CSLR), can be described as a pool of funding available to consumers for whom the Australian Financial Complaints Authority (AFCA) makes a determination in their favour and the claim cannot be paid by other means.
Speaking about the CSLR, which has more of a direct impact on mortgage and finance brokers, the MFAA and FBAA said that complaints in relation to the industry made to AFCA are low and that the number of unpaid determinations it generates is minimal.
In a statement on Monday, federal Assistant Treasurer and Minister for Financial Services Stephen Jones (pictured above left) said that the Albanese government had reintroduced a legislation package to set up FAR and CSLR.
“Together, these bills will make executives more accountable for the conduct of financial institutions and provide an avenue of redress for victims of financial misconduct,” Jones said.
There were around 2,000 cases on hold with AFCA, Jones said, noting they were awaiting passage of the CSLR. In another 30 cases, Jones said compensation had been awarded but could not be paid until the scheme had been established.
“If the CSLR Bills are not passed this month, consumers will be waiting until 2024 to receive compensation,” Jones said.
MFAA CEO Anja Pannek (pictured above centre) said the FAR regime would apply to banks, consumers, and superannuation funds. As the regime did not extend to credit licensees, Pannek confirmed that any direct impact on broking businesses would be minimal.
While the MFAA had “consistently supported” the setting up of the CSLR to compensate customers for unpaid AFCA determinations, consumer protection must be balanced with regulatory cost to small broking businesses, she said.
“Complaints to AFCA with respect to our industry remain consistently low, and the number of unpaid determinations generated by our industry is minimal,” Pannek said.
“We have therefore been heavily engaged with Treasury with respect to the design of the CSLR, particularly in ensuring that there is no cross-subsidisation by our industry with respect to the funding of the scheme.”
Pannek said that the passing of the CSLR Bill would result in a cost to brokers in the form of a new levy.
“Given the cost of unpaid determinations arising out of the mortgage and finance industry is low, we expect the quantum of the levy payable by brokers to be correspondingly low,” she said.
While the MFAA had received confirmation from both the government and the Opposition that recommendations regarding broker remuneration from the Royal Commission into Misconduct in the Banking sector would not be implemented, Pannek said that the MFAA remained “vigilant” in being prepared to defend the industry through strong data and consumer outcomes.
“We know brokers are living and breathing the Best Interests Duty, engendering trust and confidence in the channel, demonstrated through continued increases in mortgage broker market share,” Pannek said. “We proactively monitor AFCA complaint volumes against mortgage and finance brokers which remain incredibly low. We also monitor market share and consumer attitudes to brokers through NPS scores.”
Pannek said that these data points, together with the effective embedment of Best Interests Duty, would serve as a gauge for the health of the industry and highlight to policymakers that it was being proactive in ensuring good consumer outcomes were maintained.
FBAA managing director Peter White (pictured above right) also recognised that complaints made to AFCA in relation to the mortgage broking industry were low.
Over the 2022 calendar year, White pointed out that AFCA received 167 complaints about mortgage brokers. He noted that this portion was low compared to a total of around 75,000 complaints received.
As most brokers have professional indemnity insurance, White said the CSLR could be considered as more of a catch-all for consumers.
“It’s about creating a pool so at the end of the day, consumers don’t miss out,” White said.
Because of the small number of complaints generated from the industry and high incidence of professional indemnity insurance, White said he was undecided as to whether the CSLR was a positive move or not.
Noting the role of the courts and AFCA (the ombudsman), which provides free access for consumers for the settling of disputes and recourses, White questioned how many levels for the handling of consumer complaints were required.
In cases where there is an ombudsman (AFCA) determination against a broker, there may be a very small number of cases where they do not have professional indemnity cover, he said.
“Consumers need to make sure they have the right protective measures around them, but I would have thought we were already close to that,” White said. “It would be different if brokers did not have professional indemnity insurance, but because that is there, I’d still want to hear the full debate that makes sense for mortgage broking.”