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Questions asked in Banking Royal Commission

The Banking Royal Commission in Australia has begun, with regulatory and compliance obligations analysed across a range of financial products and services. While fraudulent brokers and loan applications by the National Australia Bank, Aussie Home Loans, and the Commonwealth Bank were at the top of the agenda, the commission will also be looking at the wider world of mortgage broking, car financing, and unsuitable credit card limits.

According to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, "The first round of public hearings will consider aspects of the treatment of consumers by banking and financial services providers in connection with a number of credit products, including residential mortgages, car finance and credit cards. It will also consider the arrangements and practices of banking and financial services providers and their intermediaries."

NAB's Introducer Program was at the top of the Commission's list, with the bank's fraudulent loan applications addressed in detail. The Introducer Program got NAB into trouble last year that it was found to reward "introducers" who successfully referred people to the bank for a loan. This incentive scheme has been widely critisized, with many of the applications received using doctored payslips and other false information. Twenty bankers have already lost their jobs for breaching lending policies, with the Royal Commission taking a deeper look into the culture that allowed these problems to exist.

Fraudulent brokers and broker arrangements by Aussie Home Loans will also be analysed, as will the accreditation of brokers and broker arrangements by the Commonwealth Bank. Commonwealth Bank incoming chief Matt Comyn is expecting such an uncomfortable time that he has written an email to his 14,000 retail staff asking them to prepare for the weeks ahead: "Where we have made mistakes we must and will take responsibility for them, we will make things right for our customers, and not repeat the same mistakes... We will exceed our regulatory and compliance obligations, and enhance the financial wellbeing of every single customer we serve."

A number of worrying cases have already come to light during the first couple of weeks, including revelations that NAB's Introducer Program rewarded multiple people for pushing unsustainable home loans. According to the commission, "The use of loan size, linked with upfront and trailing commissions for third parties, can potentially lead to poor customer outcomes. We would support… measures on incentives related to mortgages… for example the de-linking of incentives from the value of the loan."

Conflicted remuneration packages for mortgage brokers were specifically addressed, with a conflict of interest recognised between mortgage customer and brokers. Numerous cases were cited where brokers failed to clearly disclose upfront fees, on-going fees, and incentives to stop people paying off their mortgages sooner. With more than half of all Australian home loans going through mortgage brokers, this is a significant finding. The Commonwealth Bank came under particularly heavy fire for enabling numerous conflicts of interest and hidden fees on mortgage products. While residential mortgage practices were at the top of the list, Westpac and ANZ are also likely to come under fire for their car financing activities, with Westpac likely to feel the heat for their "unsuitable credit card limit increases".

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