Commonwealth Bank boss Matt Comyn has revealed the bank was a week away from scrapping commissions paid to mortgage brokers but ditched the plan for fears it would decrease its share of the home loan market.

Key points: CBA learned paying a flat fee to brokers in the Netherlands led to better customer outcomes

CBA learned paying a flat fee to brokers in the Netherlands led to better customer outcomes The model would have saved CBA $197m over five years, which could have been passed on to customers

The model would have saved CBA $197m over five years, which could have been passed on to customers CBA abandoned the plan, fearing it would lose market share of home loans

The first of the major bank bosses to front Kenneth Hayne's royal commission, Mr Comyn told the inquiry's Sydney hearing CBA abandoned plans to move to a flat fee model for mortgage brokers due to concerns it would be disadvantaged if it was the first bank to make the change.

Counsel assisting Rowena Orr QC detailed an email exchange between Mr Comyn and then-chief executive Ian Narev in April last year, in which Mr Comyn said he would announce the change the next week.

"We believe this is an opportunity that will not be repeated and requires decisive action," Mr Comyn wrote in the email.

"We will announce our intention for these arrangements to take effect on 1 January [2018]."

However, more than 18 months after Mr Comyn wrote the email, mortgage brokers continue to receive upfront and ongoing commissions from CBA.

"What happened, Mr Comyn?" Ms Orr asked.

"We come to a view that nobody will follow and we will suffer material degradation in volume and we will not improve customer outcomes," Mr Comyn replied, arguing only an industry-wide move would benefit borrowers.

In his now-abandoned proposal, Mr Comyn noted the financial impact on mortgage brokers.

"The effect of these arrangements will be to reduce the expected broker revenue on an average loan from $6,627 to $2,310," he detailed in 2017.

Mr Comyn told the hearing about 1,300 brokers earned more than $1 million per year, while the top 200 earned around $2.5 million.

If the flat-fee structure had been implemented, it would have saved CBA $197 million over five years, which could have been passed on to customers through lower interest rates.

'There would be a commercial detriment to us'

The commission heard CBA was the least-reliant of the banks on the mortgage-broking channel, with only 40 per cent of its home loans sold through brokers — a much smaller proportion compared to regional and small lenders.

The Commonwealth Bank completed a five-year study of its mortgages and found loans originated through brokers were larger, took customers longer to pay down and were more likely to be in arrears.

Mr Comyn said he consulted with Dutch regulators on reforms in the Netherlands and concluded their model of borrowers paying a flat fee to brokers led to better customer outcomes compared to banks paying brokers commissions related to the size and type of loan.

However, when the Commonwealth Bank made a submission to the independent Sedgwick review of bank remuneration in early 2017, it instead proposed a different model, where it was the bank that paid a flat fee to brokers.

"Why didn't you go to the Netherlands' model rather than to the lender-pays-the-fee model?" Ms Orr probed.

"We felt there was a genuine first-mover disadvantage," Mr Comyn said.

"So you would lose business but not have the industry move through with you to try and improve customer outcomes?" Ms Orr asked.

"Yes, there would be a commercial detriment to us and no accompanying improvement to customer outcomes," Mr Comyn said.

The final report of the Sedgwick review, released in April last year, recommended the banks develop an approach to remove the direct link between broker commissions and loan size in a "timely fashion".

However, Mr Comyn admitted CBA still had no plan for how it would comply with the recommendation and was waiting on the royal commission's recommendations, due in the February 2019 final report.

CBA grilling not over yet

Despite spending a whole day in the witness box, Mr Comyn is not finished at the commission just yet.

The chief executive will return to give further evidence on Tuesday and is expected to be followed by the chairman of CBA's board, Catherine Livingstone.

Monday's questioning revealed mortgage broking was not the only topic Mr Comyn failed to successfully lobby his predecessor Mr Narev, on.

The commission heard Mr Comyn had concerns about low-value, credit-card and loan-protection insurance since 2014, which he said he raised with Mr Narev on three occasions in 2015 and 2016.

Mr Comyn admitted the bank failed to implement changes recommended by ASIC in 2011, which led to the mis-selling of consumer-credit insurance to more than 64,000 customers.