It’s been a tumultuous year since commissioner Kenneth Hayne handed down his recommendations following the banking royal commission. But what has actually changed over the past 12 months and what impact has the commission had on the industries it explored?
What’s changed for banks and lenders?
The royal commission put a spotlight on the banking sector, exposing poor practices to people inside the industry and out. Over the past year, the big banks in particular have had to make amends to their customers, and 25 institutions have signed on to a new Banking Code of Practice that sets a new standard for the industry to conform to.
There are now greater incentives for banks and lenders to act in the best interests of customers. Banking executives’ roles and accountabilities are subject to stricter observation under the Banking Executive Accountability Regime, and ASIC has begun taking a more active approach to enforcement.
While the past year has undoubtedly been a rough one, however, many banks and lenders are already using the changes to rebuild relationships with customers and develop services that better align with consumer expectations.
What’s changed for brokers?
When the recommendations from the royal commission were first handed down, the broking community was shocked by the suggestion that trailing commissions be banned and that the borrower, not the lender, should pay broker fees in connection with home lending. While this recommendation wasn’t implemented by the government, the broking community has still felt the impact of legislative changes. The key changes the industry will need to implement include: establishing a compulsory scheme to check references for prospective mortgage brokers; more thoroughly vetting applicants’ ability to repay their loan under tighter responsible lending guidelines; mandatory misconduct reporting and compensation arrangements for customers; and ensuring they are acting in line with the ‘best interest duty’, that protects consumers from potential conflicts of interest that might cause brokers to recommend an unsuitable product..
While these changes may frustrate some, their implementation will only strengthen brokers’ unique position amongst both customers and industry as trusted, respected intermediaries.
On the whole, mortgage brokers have found themselves in a privileged position as a result of the royal commission. With banks and lenders under intense scrutiny, brokers – with their personal customer relationships and long-standing customer-centric approach – have continued to progress the role of trusted advisor, able to provide context and offer recommendations to uncertain consumers.
What’s changed for consumers?
At the end of the day, all the recommendations and legislative changes brought about by the royal commission are aimed at one thing: improving the financial system for the benefit of its customers. And it’s in the best interest of the industry to improve consumer outcomes in order to regain the trust (and business) of customers.
The full impact of the royal commission remains to be seen. But what has already changed for consumers is their ability and willingness to question whether they’re getting the best deal from their current bank, lender or broker, and the increasing range of alternative options available to help them improve their financial situation and wellbeing.
Of course, there is still more work to do and some things remain unchanged. In the case of broker clawback, for example, banks are still charging brokers if a home loan they write is refinanced within two years of settlement.
This practice is good for the banks, who reduce customer churn. For consumers and brokers it’s another story. Brokers are disincentivised to switch consumers to a better rate during this period for fear of being hit with a penalty that negates any income earned., It is a potential area for future reform to drive competitive outcomes for consumers..
As more of the royal commission recommendations are implemented, it will be interesting to see what else changes, what remains the same, and how consumers will react to the new financial services system.
Commentary provided by Anthony Justice, CEO at uno Home Loans.