The Introducer Referral Scheme
A mid-sized bank launches a home-loan referral program. A local accounting firm introduces clients who are considering refinancing; the bank pays the firm $1,200 per settled loan. The arrangement is disclosed to borrowers in a single sentence in the loan pack. Six months in, 40% of referred loans come from one accountant whose clients are mostly self-employed with thin documentation. Two of those loans have gone into arrears within four months of settlement. The bank's credit team says the loans met policy at approval. The accountant has recently begun asking whether the fee can be paid 'per application' rather than per settlement.
1. Identify the conduct and compliance risks in this arrangement and rank them by seriousness.
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Highest - conflicted remuneration driving volume over suitability. A $1,200 per-settled-loan payment rewards the introducer for completion, not for good customer outcomes. The request to shift to 'per application' would remove even the weak link to settlement and pay for volume regardless of quality. That should be refused outright.
High - concentration and documentation risk. 40% of referrals from one source, self-employed borrowers with thin documentation, and two early arrears is a pattern, not noise. 'Met policy at approval' answers only whether the boxes were ticked; it does not answer whether the policy is adequate for this channel or whether the introducer is steering unsuitable clients.
High - inadequate disclosure. A single sentence in the loan pack is unlikely to be prominent, timely, or specific enough for the borrower to understand that their accountant is paid $1,200 by the bank if the loan settles. Disclosure buried at the end of a pack is weak consent.
Medium - introducer conduct outside the bank's control. The accountant may be giving credit advice without a licence, or implying the bank's approval is assured. The bank is exposed to that conduct because it created the incentive.
Medium - monitoring gaps. No apparent channel-level review of arrears by source, which is how the pattern should have been caught earlier.
2. What controls should the bank put in place, and what should it do about the two arrears cases?
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Controls.
- Remuneration redesign. Reject per-application payment. Move to a structure that does not reward volume alone - e.g. a flat fee with clawback for early arrears or exit within 12 months, and a cap on the share of business any one introducer can supply.
- Channel-level credit review. Assess arrears, documentation exceptions, and approval overrides by introducer, not just at individual loan level. Set thresholds that trigger review.
- Introducer due diligence and training. Confirm what the accountant tells clients, prohibit assurances about approval, and require written acknowledgements. Check licensing boundaries - the introducer should refer, not advise.
- Disclosure uplift. A clear, specific, prominent statement at the point of referral: who is paid, how much, by whom, and on what event. Confirm the borrower has seen it.
- Conflict register and periodic review of the arrangement by compliance.
The two arrears cases. Do not treat them as isolated. Review both files for: whether the borrower understood the product; whether income was verified or accepted on accountant assertion; whether the introducer made representations; and whether the borrower would have qualified without the referral. If there is evidence of unsuitable advice or misrepresentation, remediate - restructure, waive fees, or compensate as appropriate - and report through the bank's incident process. The findings should feed back into whether the arrangement continues at all.