Mortgage broking vertical integration conflicted: poll

A Mortgage Business poll of 193 readers found 79.8 per cent believe a conflict of interest is created by vertical integration, while 20.2 per cent said no conflict is created.

The findings reflect those of the Financial System Inquiry (FSI) interim report, which noted that vertical integration may have the potential to distort the way in which brokers direct borrowers to lenders.

While the report conceded it remains unclear whether the banks are abusing their power, it did note that the ACCC “has taken relatively little action against the major banks in recent years”.

Vertical integration is commonplace in the financial planning industry, but the trend has become more apparent in the mortgage space since the financial crises.

Economics consulting firm Macroeconomics prepared the Review of the Major Banks: Control of the Wider Financial Sector report for the Customer Owned Banking Association.

The report reviewed the four major banks’ annual reports between 2004/2005 and 2012/2013 as well as relevant IBISWorld industry reports.

It singled out CBA and NAB for their oligopolistic behaviour, detailing recent acquisitions by both banks as they continue to grow their share of the third-party channel.

“The mortgage broking industry, while containing some large corporations, also contains a high number of sole proprietors,” the report said.

“More recently, Australia’s largest banks have attempted to gain a foothold in the industry,” it said, noting similar occurrences in the financial planning space.

“NAB has made acquisitions of existing mortgage broker groups, while CBA has successfully gained control of Australia’s second largest mortgage broker, Aussie Home Loans,” the report said.

“Given the ACCC’s acceptance of the reduction in competition as a result of originators purchasing brokers, this transaction may encourage similar transactions moving forward.”

The FSI has requested further information on the way in which mortgage brokers direct borrowers to lenders and the broader competition issues of integration.

Second round submissions are due next week, with the inquiry expected to deliver its final recommendations to government by the end of the year.