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ACCC defends vertical integration approvals

by Reporter6 minute read
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The competition watchdog has defended its decisions to approve mergers and acquisitions in the mortgage market, including the major banks’ acquisition of broker head groups.

In its submission to the Productivity Commission (PC), the Australian Competition and Consumer Commission (ACCC) defended its decision to allow vertically integrated acquisitions in the financial sector, noting that it was “satisfied” that such acquisitions “would not result in a substantial lessening of competition”, as required by the Competition and Consumer Act (CCA).

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In its draft report and throughout its public hearings, the PC claimed that “clear conflicts of interest created by ownership” are “inherent” in the mortgage market, making particular reference to the Commonwealth Bank’s (CBA) acquisition of Aussie Home Loans.

The PC also alleged that lenders are wielding “significant influence” over aggregators and called for a “clear legal duty” to be imposed on aggregators and the brokers that fall under them.


In its submission, however, the ACCC outlined its justifications for allowing CBA, National Australia Bank (NAB) and Westpac to acquire third-party businesses in the mortgage market.

CBA’s acquisition of Aussie Home Loans

In relation to the CBA’s acquisition of the majority share in Aussie Home Loans in 2013, the ACCC noted that it did not oppose the acquisition on the basis that:

  • Alternative mortgage suppliers would continue to provide “competitive restraint post-acquisition”.
  • CBA’s ability to increase the volume of white label home loans through Aussie “would not give rise to foreclosure of rival lenders to the extent that a substantial lessening of competition was likely to arise”.
  • Aussie brokers made up 6 per cent of the mortgage broking market, and “there were many other distribution channels through which lenders can access brokers and borrowers”.

NAB’s acquisition of Challenger Financial Services Group

In 2009, NAB acquired mortgage management business Challenger Financial Services Group. During its review of the proposed acquisition, the ACCC found that:

  • The proposed acquisition would not result in a significant increase in market concentration, claiming that NAB’s home loan market share would increase by “less than 1 per cent”.
  • NAB was “unlikely to use its control of the broker platforms it would be acquiring to favour its own products, constrain the ability of other lenders to utilise these platforms, remove its products from competing platforms, or restrict the ability of mortgage brokers to utilise other platforms”.

Westpac’s acquisition of RAMS Home Loans

Further, in relation to Westpac’s acquisition of the RAMS Home Loans network in 2007, the ACCC noted:

  • RAMS represented a “small proportion” of the home loan market, and thus “market concentration of the merged entity would not be sufficient to raise competition concerns”.
  • There were “sufficient alternative suppliers” of mortgage products offered by CBA, NAB and ANZ.
  • Barriers to entry into the mortgage market for “established non-bank lenders and established foreign banks appear to be low”.

Representatives from both the PC and the Bank of Queensland agreed that the lack of publicly available data has made it difficult to measure the actual impact aggregator ownership has had on the flow of mortgages in Australia, though Commissioner Harris has previously suggested that bank-owned aggregators control about 70 per cent of the mortgage broking market.

He added that in-house products or white label loans appear to “dominate disproportionately” the outcomes for borrowers who use bank-owned aggregators.

The PC chair noted that, in 2015, CBA had 21 per cent overall market share in the broker channel but a 37 per cent market share via Aussie Home Loans.

However, while it has concerns about vertically integrated groups, the PC said that forcing banks to divest of their broking businesses should be “a last resort”.

“Of course, if the necessary solutions prove commercially unpalatable, institutions themselves may then choose to divest,” Mr Harris said.

Many in the industry have spoken out against the Productivity Commission’s draft report, with some suggesting that the remuneration figures cited are “incorrect”; others stating that the recommendation to charge fees would be “anti-competitive”; and both broker associations calling out some findings of the report (which relied heavily on figures from CHOICE consumer group and UBS reports) as “limited”, “amateur” and — in some cases — “nonsense”.

[Related: Vertical integration creates ‘conflict of interest’ for brokers: PC]

ACCC defends vertical integration approvals
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