The question in the Financial System Inquiry interim report of what impact vertical integration in the banking industry is having on the mortgage broking sector has provoked a lively debate, with calls for much tighter regulation of brokers from some quarters.ME Bank has called for wider disclosure of all incentives and benefits received by brokers from lenders - and not just commissions. It also wants brokers to disclose their ownership and the proportion of brokered loans that go to owners.The FSI's interim report asked whether the increasing integration of the banking sector with the mortgage broking industry was creating distortions in the way brokers direct borrowers to lenders.If that was the case, the Inquiry asked, what would be the best way to limit adverse impacts.ME Bank's second round submission said: "We certainly believe that there are emerging characteristics within the industry that give rise to serious concern. It is likely that as part of the strategic objective in making investments in these [broker and aggregator] networks, the banks have factored in the potential to increase deal flow and source lower risk borrowers."The bank suggested that brokers be required to recommend three different loan choices, two of which would not be associated with the owner of the group.EY said the Inquiry should consider recommending a change to the remuneration structure of the mortgage broking industry to address its "sales-driven" culture. It said a move from commission-based remuneration to fee for service requirement would help mitigate conflicts of interest.It also said measures to create greater consistency in regulatory standards and conflict management should be considered, particularly given the likelihood of convergence between the mortgage broking and financial planning industries. The Mortgage and Finance Association of Australia's submission said there was no evidence that bank ownership of mortgage broking groups was influencing brokers to act anti-competitively."The evidence is that mortgage brokers have been influential in diffusing the concentration and facilitating competition in the mortgage market," the MFAA said.The association pointed to its own research, which showed that the Big Four banks have 82 per cent of mortgage share through direct sales channels and 74 per cent in the broker market.Mortgage Choice chief executive Michael Russell issued a media release yesterday, acknowledging that there was a perception of conflict that brokers had to manage.Russell said: "The perception that bank ownership distorts a broker's recommendations arises when the bank on the register of the head group elects to pay a higher level of commission or lowers their aggregation fees as an inducement for business."While this practice does not guarantee brokers will send more business to that particular bank, it does place them in a perceived conflict. While the Commonwealth Bank has a 17 per cent stake in Mortgage Choice, our brokers are paid the same rate of commission no matter which home loan the customer chooses."