Yes, that’s the kind of headline we could see as a result of national regulation. Unlikely? Well who knows.  It’s certainly been enough for the Mortgage Finance Association (MFAA) – not normally particularly combative – to raise the issue with the corporate regulator ASIC.

The Australian Securities and Investments Commission (ASIC) is to administer the new Australian Credit Licence (ACL) which comes into force 1/7/2010.  The ACL provides for fines of over $1million for a company or 2 years in gaol for individual brokers who allow a conflict of interest to affect the advice they provide their clients.

But ASIC has been silent on corporations that create these conflicts of interest by with ‘volume incentives’ for brokers.  Why would a bank require brokers to do a minimum number of deals with them? Well their story is that they need brokers to stay in practice to keep the quality of their loan submissions up. But let’s say you’re an experienced broker and you’ve had plenty of practice and the quality of your submissions is fine?  Well then you’ve got a conflict of interest – which just happens to favour the interests of the bank.  If you’re a bit short of deals with that bank in any given reporting period your conflict of interest is pretty profound.

You risk your livelihood if you don’t recommend the minimum number of loans. Whether the lender is competitive or not.

Loss of accreditation isn't simply a case of not being able to write new loans it also means the affected broker is then unable to assist their existing clients – as devastating as that could be in a market where four big banks dominate the business. The broker is also prevented from servicing their own clients with that bank. In such a situation a simple loan increase would probably mean the bank would take the loan off the broker.

ASIC to date has shown no interest in becoming involved in the issue and in the final twist, given that this issue is regarding ‘conflict of interest’ the MFAA being the body purporting to represent brokers interests, has a single major sponsor ... none other than the bank in question.

Andrew Hunter
www.peachhomeloans.com.au