Why banks are exiting wealth and insurance
An increasing regulatory burden has been influential in some banks exiting elements of their insurance and wealth management businesses, but most managers believe increased regulatory scrutiny is warranted if the sector is to restore its reputation.
That is the bottom line of new research released by Australian academics Dr Shantha P Yahanpath and Shah Yahanpath from the Sydney Business School at the University of Wollongong and presented to an academic forum at Harvard with the pair's earlier research having concluded that the banks have likely been disappointed by their investment in wealth management base on the returns to shareholders in the short-term.
In their latest research the two academics have pointed to the manner in which the increasing regulatory burden has been critical to decision-making by the banks, including influencing the decision by National Australia Bank to sell 80 per cent of its MLC Insurance business to Nippon Life.
They claimed that some insurance businesses had not only been the subject of increasing domestic regulation but also international banking regulation.
"This led to [the] selling of insurance divisions, such as MLC selling [the] insurance arm to Nippon Life," the two academics said.
They said that their research had revealed that senior managers in both wealth management and insurance believed that increased levels of regulation had adversely impacted profitability and that there had been disproportionate attention from regulators due to staff misconduct which had then led to "disproportionate allocation of resources including senior management time.
However the two academics said the results of a survey conducted during their research revealed solid support for a strong regulatory framework, with most executives believing that while the additional regulatory burden had a short-term adverse effect it would ultimately deliver long-term benefits.
Interestingly, the survey revealed senior executives divided in their opinion on a parliamentary inquiry into financial services with 36.17 per cent in favour, with 36.17 believing the Australian Securities and Investments Commission (ASIC) was sufficient.
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