The Effect of Conflict of Interest Disclosures on Misselling: Evidence from the Dutch Mortgage Industry

Abstract Conflicts of interest are pervasive in the financial industry. Globally, policymakers are seeking ways to limit such conflicts and curb the resulting misselling of financial products. This study investigates the effects of a prominent policy instrument: the mandatory disclosure of financial intermediaries’ mortgage commissions. Using unique confidential regulatory data, we evaluate the mandatory commission disclosure of mortgage sales that was implemented in the Netherlands in 2009. We find that, contrary to some predictions based on prior experimental research, the association between risky sales and intermediaries’ commission-dependency decreased after the introduction of disclosure regulation, indicating reduced misselling. More commission-dependent intermediaries experienced relative decreases in mortgage revenues, but also show a relative increase in revenues from non-disclosure products, indicating a shift of focus to these products. This suggests that while disclosure policies may contribute to mitigating conflicts of interest, policymakers also need to consider possible adverse effects of disclosure regulations on non-substitutable products in firms’ product portfolios.