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The treasurer has held a press conference in Melbourne today, just ahead of the release of the Royal Commission interim report.
During his speech he called the report "frank and scathing" and thanked the commissioner for his work.
He said the Royal Commission was announced last year because "the culture, conduct and the compliance of the secotr is well below the standard the Australian people expect and deserve".
He also said, "Almost every piece of conduct identified and criticised in this report can be conducted directly to some monetary benefit from engaging in the conduct."
What the report says
The report gathered four kinds of issues in the space. The first was the confusion over roles and responsibilties, the second was over customer needs, the third was over 'unsuitable' lending and the fourth was processing errors.
It poses a number of questions to be discussed in a later round of public hearings, including on broker roles, conflicted remuneration and the role of ASIC.
The report discusses how borrowers should be made aware of remuneration, as well as how brokers deal as intermediaries between the customer and the banks.
The report says, "very often, the relationship between broker and would‑be borrower will either be obscure or a relationship in which the broker owes the borrower no duty larger than not to negotiate an unsuitable loan".
As expected, the report also discusses the use of the HEM benchmark. The report on this matter says the benchmark "can lead only to the conclusion that in many of those cases the broker has not taken any effective steps to inquire into, or verify, the expense information supplied by the borrower".
The report adds, "there is no doubt that in the eyes of at least some lenders, the broker’s task is to sell that lender’s products", before going on to remuneration.
About remuneration the report says, "What is plain, however, is that value- and volume-based remuneration for intermediaries in the home loan industry has been an important contributor to misconduct and conduct falling short of community standards and expectations and poor customer outcomes.... And both CBA and ASIC rightly identified the consequences of value-based remuneration of brokers."
This report follows six rounds of public hearings, amounting to 59 hearings in total, led by Commissioner Kenneth Hayne.
The Royal Commission has said the report will only focus on the first four rounds of hearings, which were: consumer lending, financial advice, loans to small and medium enterprises and experiences with financial services entities in regional and remote communities.
Some of the issues raised in the first round of hearings which are expected to be mentioned in the report include the banks' lending standards, broker remuneration and conflicts of interest.
The final report is expected in February 2019 and follows a seventh round of hearings, commencing on 19 November.
This round will focus on policy questions arising from the six rounds of hearings. The final report will detail questions and recommendations following this final round.
Aussie Home Loans was one of the first to respond and has said it welcomed the release of the interim report for the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
Aussie CEO James Symond said, “We are in the process of reviewing the report in detail. We will provide a formal response to the Royal Commission, which will continue to advocate for our industry, our brokers, and the important service they provide for Australian home buyers, owners and investors.
“The Aussie team will continue to work closely with the Combined Industry Forum, Mortgage and Finance Association of Australia (MFAA), regulators and the Federal Government to ensure all factors are considered before any action is taken that could harm competition in home lending and impact the positive customer outcomes we know our industry delivers."
