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Australian government backs down on banning mortgage trail commissions

The Australian government has decided not to prohibit trail commissions on new mortgage loans, a key recommendation from the recently concluded royal commission into banking.

The government has decided to conduct a review in the next three years to see if trail commissions should be kept, according to an announcement from Treasurer Josh Frydenberg. The review will be conducted by the Council of Financial Regulators and the Australian Competition and Consumer Commission. A review will also consider whether upfront commissions should be banned and replaced by customer-paid fees.

Frydenberg noted than a review of mortgage broking remuneration from the Australian Securities and Investments Commission did not identify trail commissions as leading to poor customer outcomes and did not recommend the removal of trail commissions.

Meanwhile, the government will introduce new measures that will legally obligate mortgage brokers to act in the best interest of consumers and will stipulate that the value of upfront commissions be linked to the amount drawn-down by borrowers, among others.