Government to act on enforcing adequate ownership disclosure

The Turnbull government has backed a recommendation by the Financial System Inquiry for mortgage brokers to better disclose vertical integration

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The Turnbull government has backed a recommendation by the Financial System Inquiry for mortgage brokers to better disclose vertical integration.

In its response to David Murray’s Financial System Inquiry, the Treasury said it agreed with Inquiry Recommendation 40, which would require mortgage brokers and financial advisers to disclose ownership structures, saying it will also develop legislation to ensure this.

“We will also develop legislative amendments to ensure that financial advisers and mortgage brokers adequately disclose their relationships with associated entities,” the response stated.

Brett McKeon, managing director of ASX-listed aggregator AFG told Australian Broker that he thinks this is a positive move for the industry. 

“I think it is important for consumers to be aware where beneficial ownership lies. If a broking group is owned directly by a bank, I think the consumer has the right to be aware and to question the recommendation that is made if it is a product that is promoted by the bank that owns the broking group. I think it is all about keeping consumers informed.”

McKeon says he believes there is a problem with consumer awareness in the industry, however, he does not believe enforcing clear ownership disclosure will harm a broker’s business.

“Consumer awareness for aggregators would be very low but with banking – i.e. CBA owning Bankwest – then I think 50% or 60% of consumers would be aware. However, that means there is still a good 40% to 50% of consumers who would have little or no awareness,” he told Australian Broker.

“In some instances, [ownership disclosure] could change a consumer’s perception – and maybe only one in 10 or two in 10 – because some people will leave ‘Bank A’ because they were dissatisfied with the way they were treated and they will join ‘Bank B’ which is owned by ‘Bank A’, but if they were better informed maybe they wouldn’t do that. 

“Similarly, with brokers, if a broker has been recommending a Macquarie or a NAB product, the consumer might just want to overlay one or two more questions to get comfortable about that choice.   

“However, a lot of those brokers in those groups don’t write a lot of those banks’ products anyway. I think disclosure has been with us for a while – disclosure around commissions is a good example – so I think brokers will take it in their stride and we will all move on.”

McKeon says it will be interesting, however, to see the limits of the legislation.

“It would be interesting to see if the legislation extends to the broking groups that have banks with a reasonable ownership, but not complete control.  Also, where some banks may even supply a line of debt to an aggregator, rather than equity.

“If it is tantamount to control, or equates to control – i.e. a large shareholder or if the aggregator has a line of debt or funding in place that doesn’t meet normal commercial lending terms – then I think it should be disclosed. That might be a hard one for a regulator but it is something they should look to address,” he told Australian Broker.

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