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Majors, MFAA defend vertical integration

The MFAA and two major banks have defended vertical integration in mortgage broking following requests from the Murray Inquiry for further information on the consumer impact of bank-owned brokerages and aggregators.

In its second submission, the MFAA argued that there is no evidence that bank ownership of some mortgage broking groups is influencing individual brokers to act anti-competitively and not in the consumers’ interest.

The MFAA pointed to the NCCP Act, which states that brokers are required to disclose commissions and lender panels and to ensure there is no disadvantage to clients as the result of any conflicts of interest they may have.

However the association made clear the different legislation governing brokers and planners around conflicts of interest.

“Unlike other legislation, eg. Corporations Act 2001 which requires an AFSL holder to ‘have in place adequate arrangements for management of conflicts of interest’ eg. conflicts may be managed by disclosure, brokers under the NCCP are required to take individual responsibility to ensure there is no consumer disadvantage and not simply disclose the conflict,” the MFAA submission said.


Commonwealth Bank and Westpac both defended vertical integration in their second submissions.

CBA argued that the higher percentage of loans directed to smaller lenders by brokers compared to the percentage of loans sourced directly by smaller lenders is indicative that integration had made no impact on competition, nor does it distort the way brokers direct borrowers to lenders.

The bank recommended no policy changes that would impact its ability to structure itself in a vertically integrated manner.

CBA currently owns 80 per cent of Aussie Home Loans.

Westpac, owner of mortgage manager RAMS, similarly argued that “there is no cogent evidence” that vertical integration in mortgage broking has distorted competition.


The lender said vertical integration structures have actually generated pro-competitive outcomes for consumers.

Further, Westpac argued that even if a bank-owned broker directed that broker to sell only the bank’s loans, it would not have any anti-competitive effects because other lenders could sell through the “significant range of alternative brokers, through branches or online”.

“Barriers to entry and expansion are low and so lenders could readily distribute any lost volume through alternative existing or new brokers, rapidly correcting any attempted ‘distortion’,” the submission said.

“Customers can access home loans from a wide range of lenders providing loans through diverse channels, including directly through branches or online, and through a diverse range of brokers offering services through various communication and distribution means,” it said.

In its concluding remarks, Westpac said the “perceived concerns” about the impact of vertical integration have been evaluated by the ACCC “on numerous occasions and have been rejected”.

However one lender recently hit out at the ACCC for turning a blind eye to anti-competitive deals in the mortgage market.

CUA chief executive Chris Whitehead slammed the hazy governance of financial services competition that has empowered the majors to dominate distribution.

“We have actually raised this concern with the ACCC,” Mr Whitehead said.

“Its response was that really financial services competition is governed by ASIC,” he said.

“You go to ASIC and they say they don’t have any specific brief with regards to disclosure standards, so there is no specific requirement to disclose ownership under any legislation.”

Mr Whitehead pointed to Westpac’s ownership of St George and Bank of Melbourne, and CBA’s ownership of Bankwest and Aussie as examples of multi-brand strategies that potentially mislead customers.



Majors, MFAA defend vertical integration

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