The royal commission has heard details of a “confidential” letter from outgoing CBA boss Ian Narev making the case for FOFA to be extended from financial advisers to mortgage brokers.
During public hearings in Melbourne yesterday, counsel assisting the commission Rowena Orr QC read out the contents of a private letter from Mr Narev to Stephen Sedgwick, the chair of the independent review into banking remuneration and structures.
Dated 10 February 2017, the letter explains that the bank would support extending the FOFA regime regulating financial advisers to mortgage and credit advisers.
“We agree with the reviewer’s observations that while brokers provide a service that many potential mortgagees value, the use of loan size linked with upfront and trailing commissions to third parties can potentially lead to poor customer outcomes,” Ms Orr read the letter as stating.
“Mortgages also sit outside the financial advice framework, even though buying a home and taking out a mortgage is one of the most important financial decisions an Australian consumer will make.
“We would support elevated controls and measures on incentives related to mortgages that are consistent with their importance and the nature of the guidance that is provided.
“For example, the de-linking of incentives from the value of the loan across the industry and the potential extension of regulations such as Future of Financial Advice to mortgages in retail banking.”
Asked to comment on the letter, CBA executive general manager of home buying Daniel Huggins appeared hesitant to respond, requiring further prompting by commissioner Ken Hayne.
“This has been CBA’s position,” Mr Huggins said. “I think the way in which you would achieve this obviously needs consideration. That’s why there is a hesitation.
“Moving to this, for example, de-linking of incentives, [factors] need to be considered about how you would achieve that. There are a range of things to consider.”
Ms Orr went on to probe Mr Huggins whether the bank had taken any steps to cease its practice of paying volume-based commissions to mortgage brokers.
“No, we haven’t,” he said.
However, in its submission to the Financial System Inquiry in 2015 – headed by former CBA CEO David Murray – the bank argued that the FOFA legislation in its current form should be “given time to have its effect” before further regulation should be placed on the financial services industry.
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