Australia’s largest mortgage broking business, Aussie Home Loans, admitted it had not reported fraudulent behaviour by its mortgage brokers to ASIC or police despite an executive telling the royal commission on financial services it would have been “appropriate” to do so.

Aussie executive Lynda Harris, under questioning about whether the CBA-controlled group had had kept its commitments to report such behaviour, said “we didn’t”.

Counsel assisting the commission Rowena Orr QC told the inquiry, “Aussie had certified to ASIC that it had complied with all these statutory obligations,” yet in the same year (2015) fraudulent behaviour by its brokers emerged indicating “Aussie’s representatives were not complying with the credit legislation”.

Ms Harris said: “In hindsight we could have had …more robust compliance testing.”

After CBA took full control of Aussie in 2017 it released a review of Aussie’s risk management and gave it a “red rating” in a report in December of that year.

The review found that “controls are not appropriate for the risks being managed” and “there are a significant number of issues that require immediate attention.”

CBA also found, “less than 40 per cent of staff felt they had a strong understanding of risk management or received appropriate training”. And 30 per cent thought that risk management problems were “too much trouble to report” because of the paperwork and management time that would generate.

“Overall we rated the control environment in (Aussie) as unsatisfactory due to the number of issues raised by management (77), existing issues (8) and new issues raised during our audit (17). We raised one very high and two high rated issues that were not known to management, of which two are repeat issues,” CBA found.

CBA also found 282 instances of Aussie brokers earning a commission on loans they themselves had applied for to buy properties, a practice the group has since banned.

Ms Harris told the commission that Aussie had waited for lenders who provided finance to report suspicious behaviour by its brokers because they were better placed than Aussie to observe it by comparing a number of credit applications provided by one broker.

Ms Harris also said that customers were often not told of the circumstances when a broker had been dismissed by the group for misconduct.

“I’d like to think that they would have been told that (the broker) had been terminated, but at least they would have been told that he had left,” she said.