Treasurer Josh Frydenberg announced the government will introduce a best interests duty for mortgage brokers and seek to reform broker remuneration.
It is the next step in the government's response to the Royal Commission, releasing draft legislation is in response to recommendation 1.2 which recommended mortgage brokers be required to act in the best interests of the consumer and that any breach of that duty should be subject to a civil penalty.
The latest announcement comes after the Morrison Government released its roadmap for implementing Commissioner Hayne's recommendations.
"Mortgage brokers play an important role in promoting good consumer outcomes and competition in the home loan market. Mortgage brokers have a strong presence in the home loan market accounting for close to 60 % of home loans," Frydenberg said in a statement.
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"The implementation of the best interests duty will bring the law in line with what consumers expect of mortgage brokers."
The Government's reform of mortgage broker remuneration will require the value of upfront commissions to be linked to the amount drawn down by borrowers instead of the loan amount, banning campaign and volume-based commissions and payments and capping soft dollar benefits.
It will also limit the period over which commissions can be clawed back from aggregators and mortgage brokers to two years and prohibit the cost of clawbacks being passed on to consumers.
Frydenberg added: "In addition, we will limit the period over which commissions can be clawed back from aggregators and mortgage brokers to two years and prohibit the cost of clawbacks being passed on to consumers."
Mortgage broker remuneration structures involving both upfront and trail commissions will be reviewed in three years' time by the Australian Competition and Consumer Commission.
All interested parties are sable to make submissions as part of the consultation on the draft legislation which is available to the public now.