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Mortgage broking vertical integration 'conflicted', says Murray

The Murray Inquiry has found vertical integration in mortgage broking can create conflicts of interest, hampering competition.

Released today, the Financial System Inquiry interim report found that vertical integration may have the potential to distort the way in which mortgage brokers direct borrowers to lenders.

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

This statement echoes comments made by CUA chief executive Chris Whitehead, who raised concerns about bank ownership of mortgage aggregators and the lack of intervention from the ACCC.

“I am concerned that there is a real potential for the majors to clone the innovative products of their competitors based on the market intelligence they are gathering,” Mr Whitehead told Mortgage Business.

“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.

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The ownership of aggregators by the majors has been a contentious issue, dividing opinion among mortgage professionals.

Aussie Home Loans executive director James Symond recently dismissed criticism of the brokerage’s ownership by CBA, telling Mortgage Business that the vertically integrated structure does not sway Aussie brokers.

“If a broker out there thinks that by having a minor or major bank on their register means that Aussie is flogging CBA loans, that’s not true,” Mr Symond said.

MFAA chief executive Phil Naylor also defended bank-owned aggregators, telling Mortgage Business that it creates no conflict of interest.“There is not a lot of public information here, but I am not seeing any evidence that bank-owned aggregators are favouring the bank that owns them,” Mr Naylor said.

“If they did, they would be destroying their credibility as a provider of advice on a range of lenders,” he said.

However, others have been quick to point out potential conflicts.

Firstpoint director Troy Philips believes that while major lenders CBA and NAB have a ‘straglehold on distribution’, brokers are not to blame.

“Brokers are not to blame for pushing the majority of loans to the majors,” Mr Phillips told Mortgage Business.

“CBA and NAB have fostered relations with the third party for so long that brokers have no reason to give smaller lenders their business,” he said.

Before the Inquiry can make a recommendation on vertical integration in mortgage broking, it seeks further information on the way in which mortgage brokers direct borrowers to lenders, and the broader competition issues of integration.

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