Vertical integration conflicts with client best interest

compliance "financial planning"

12 January 2017
| By Mike |
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Senior Australian Securities and Investments Commission (ASIC) executives have openly questioned whether vertically-integrated financial institutions can adequately fulfil their client best interest obligations.

Under questioning before the Parliamentary Joint Committee on Corporations and Financial Services, ASIC deputy chairman, Peter Kell said a major test for vertically integrated organisations would be whether they would be able to put client's best interests first.

"In terms of vertical integration, the key issue is that, under the law you have to act in the best interests of clients. You have to put the clients' interests first. You have to avoid conflicts of interest," he said.

Kell said the challenge for those vertically integrated businesses is: "can they do that? Can they achieve that within that model?"

The ASIC deputy chairman said that while he was not sure that the regulator should be dictating what business model an individual bank should follow, it was a question that needed to be put to them — "Are you going to be able to run a model that provides high-quality, impartial advice to your customers within that vertical integration?"

Kell told the Parliamentary committee that ASIC was currently looking at the question of vertical integration and best interests and that the results would start to be seen.

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