Banks defend vertical integration

Australia’s major banks have rejected the notion of enforced structural separation as a means of dealing with conflicts of interest arising out of vertical integration.

The Australian Banking Association (ABA) has used a submission to the Senate Economics Legislation Committee to both reject a push for enforced structural separation and to defend the virtues of “bank integration”.

What is more, the ABA submission has pointed to recent moves by the major banks in the wealth management area as proof of their willingness to unilaterally simplify and demerge their businesses.

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“Bank integration can enhance competition and provide economies of scale that reduce the prices of products and services offered to customers,” the ABA submission said. “Integration allows customers the choice of having a single relationship with their financial institution and this can be tailored to meet the needs of that individual, leading to more innovative products and services.”

“While some customers choose to have relationships with different institutions, others prefer to deal with one institution. The market should be able to offer this choice and shouldn’t be hindered by such radical regulatory intervention, which is at odds with the findings of the Royal Commission, the Financial System Inquiry (FSI) and the Productivity Commission (PC).”

“ABA members have different strategies in relation to the range of services they offer and the extent of vertical integration in their business. Some members are taking steps to simplify their businesses and sell or demerge some of their vertically integrated structures. Banks should retain the flexibility to determine these strategies in the future.”

The Senate Economics Legislation Committee has been taking submissions responding to the Banking System Reform (Separation of Banks) Bill 2019 which is being pursued by the Pauline Hanson One Nation Party.

 

 




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Lol please. They were flogging everything off expecting vertical integration to be banned, as it should be for banks and industry funds alike...

Then Hayne gives them a massive free kick allowing it to continue because 'they are moving away from it'. Like the banks will every self regulate... Suddenly MLC etc are back in wealth management!

Hi Mike, this is another important article. Looking back on this article: https://www.moneymanagement.com.au/news/financial-planning/mortgages-are..., I would say that it is spot on and mortgages should be a financial product because of the need for better risk management for consumers. The forthcoming likely increase of more home owners being in negative equity will increase the need for advice. It will result in the need for mortgage brokers and financial planners to work together. The existence of silos in banking/lending divisions and financial planning divisions with different duties of care in the one organization is driving the need for reform. In The UK this situation has given rise to the The Single Financial Guidance Body - https://www.singlefinancialguidancebody.org.uk/ (Now called The Money and Pension Service).

The question is what to do about the forthcoming negative equity in housing as it is a global issue. There are interesting discussions about this at the IMF and the Australian Consumers Association community forum: https://www.facebook.com/imf/videos/450351542370716/ AND https://choice.community/.../negative-equity-in.../17368....Readers should the conversation because this is above party politics.

Keep up the good work.

Best.

John Cosstick

When (if?) banks spin off their wealth management divisions there is no overall reduction in conflict of interest. Shifting those assets to a new company changes nothing unless the advice and product operations are separated from EACH OTHER.

And if the commercial terms of the separation require the former owner of the conflicted business to deliver client referrals to the new owner of the conflicted business, that is just compounding the whole conflict of interest issue.

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