“This is a significant concern because taking out a home loan is likely to be the most substantial, long-term, financial decision many consumers make,” the ComCom said in its draft report on competition in banking services.
Commission chair John Small told journalists that while he didn't think brokers are ignoring customers' needs, he is concerned about inadequate disclosure of the conflicts of interest they face.
“We know that any given broker will work through an aggregator platform and will have access to some banks but not all banks. I'm not sure if you went to a mortgage broker that they would tell you that,” Small said.
“From the broker's point of view, they will get different amounts of money from different banks. I'm not sure when you go to a mortgage broker that they would declare that to you,” he said.
The ComCom is recommending that the Financial Markets Authority, the financial markets conduct regulator, should monitor this sort of disclosure more closely and that it should issue guidelines for brokers.
The competition regulator said the four major banks act as “a stable oligopoly” and that Kiwibank and the smaller banks are constrained by lack of capital and by Reserve Bank capital rules.
Competition in the market is “sporadic” and not sustained for both deposit accounts and home loans, the two areas of banking the ComCom chose to concentrate on.
The banks have under-invested in their core banking systems and this is hampering competition, particularly in open banking and New Zealand is significantly behind in implementing open banking, it said.
The government should accelerate the implementation of open banking and have it fully operational by June 30, 2026, the ComCom recommends.
And ComCom sheeted home “high levels of profitability” among the big four banks to the lack of competition in the market.
“If competition was working well, we would expect the NZ banking sector to derive lower returns relative to riskier banking sectors overseas,” the draft report said.
ComCom blamed legislation such as the Credit Contracts and Consumer Finance Act (CCCFA) and the Anti-Money Laundering and Countering Financing of Terrorism Act (AML/CFT Act) for hampering competition.
In particular, Small said the AML/CFT Act makes it difficult for some consumers to get basic bank accounts, particularly refugees, ex-prisoners, people fleeing domestic violence.
