In a combined second submission to the Murray Inquiry, the regionals pointed out that there is currently no obligation on mortgage brokers to disclose the ownership structure of their aggregator.
“This issue has become significant in the context of the financial advice industry where non-transparency of ownership misled consumers over the independent status of financial advisers,” the regionals said.
“The premise of a mortgage broker is that a consumer can receive an objective and independent assessment of what is the best housing loan available for their needs,” they said.
While they claim to have “no firm evidence” that vertical integration is distorting the way brokers’ direct borrowers to lenders, the regionals argued that there may be some means of increasing a broker’s remuneration without having to disclose it to mortgage customers.
“For example, where a broker has to pay a fee, or the aggregator retains part of the commission for utilising aggregator platform infrastructure, such as a computer system, this fee could be reduced or the full commission passed through to the broker if the broker originated a loan supplied by the broker’s bank owner,” the submission said.
“This fee discount would not need to be disclosed to the mortgage loan customer, but stands as a clear conflict,” it said.
In response to the inquiry’s request for further information on the competition issues surrounding integration, the regionals said integration was a “cause for concern”.
Further, the regionals argued that the majors’ dominance of the third-party channel will negatively impact the role of brokers in driving innovation and consumer welfare.
“The mortgage broker channel drove much of the competition and innovation in the lending market in the period leading up to the GFC,” the submission said.
“The broking industry emerged in the 1990s partly in response to the widespread closure of bank branches,” it said.
“It assisted smaller banks in achieving a nation-wide footprint and was a key player in the period of mortgage finance competition and innovation.
“The extent to which this industry is now becoming captured by large product providers will undermine its potential role in driving competition, innovation and consumer welfare.”
The regionals took issue with the fact that, while calling for further information, the FSI has not outlined options to address concerns over ownership of mortgage brokers by the major banks.