Appearing before a parliamentary hearing last week, ASIC deputy chair Peter Kell responded to the committee’s questions regarding ASIC's efforts in liaising with banks to monitor and ensure “what happened with Wells Fargo” is not being repeated in Australia.
“We have written to the four major banks as well as Suncorp, Bank of Queensland, HSBC and Citi within the last week asking them to undertake an audit of this issue of the cross-selling practices within their institutions and to report that to the regulator,” Mr Kell said.
“We are looking forward to their response and would hope that some of them were already undertaking such a review.”
The committee further quizzed Mr Kell on how ASIC will address the issue of vertical integration in banks and large financial advice businesses, asking if adopting an approach similar to the UK would be an option.
Mr Kell said: “The work that is currently underway to lift professional standards in advice is fundamental here.
“For too long the sector has described itself as a profession, but has not acted like a profession — where putting the interests of the clients first is supposed to be fundamental. We strongly support the reforms that are under way in that space... and that will make a contribution to stopping vertical integration.”
Mr Kell added that the key issue is whether a vertically integrated business model is capable of prioritising the best interests of the client.
“This issue is what we are in the process of testing and is part of our reviews and our work at the moment where we will soon be releasing some results,” Mr Kell said.
By definition, it is impossible to have a vertically integrated business model that puts the interests of clients first as, “if advisers are remunerated in a way that favours the pushing of a bank's products then there is a conflict of interest. Once you take that away — there's no reason to have a vertically integrated business model because there's no advantage”, the committee said.
ASIC was also questioned on its next steps following the introduction of the adviser education reforms last week.
The committee voiced concerns that there are still “very dubious practices in terms of how easy it is for people to enter the sector with the capacity to give financial advice”.
Mr Kell said: “We have a lot of work underway in terms of looking at the financial advice businesses of the major banks and Macquarie and AMP, but also more broadly in the industry.
“Some of the most problematic conduct we’ve seen is in the small-to-medium planners and we are taking action there.
“We have been pleased to see that the banks are anticipating the new requirement for standards coming in and have begun recruiting people who have a minimum level of a degree or matching requirement.
“There is obviously a way to go but I think most of the sector recognises that these standards need to go up and it's certainly headed in that direction.”