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Analyst worried about vertical integration amid RC revelations

Morningstar has flagged vertical integration as a potential issue for banks as the royal commission continues to find “very disturbing” evidence of misconduct among financial services organisations.

In a research note, Morningstar analyst David Ellis noted that the major banks and AMP have “felt the blowtorch” of the royal commission.

“Revelations to date have been very disturbing, particularly for AMP Limited,” Mr Ellis said. “Although still early, the royal commission has highlighted several circumstances where customers have been inappropriately treated, including being charged fees for no or poor service.”

The analyst acknowledged that executives have struggled to defend company actions, with “many examples of conduct and risk culture falling well short of community standards”.

“A potentially more structural concern is whether the royal commission finds the root cause of these types of issues is the vertically integrated business models employed by the major banks, AMP and IOOF,” Mr Ellis said.

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“We are monitoring the fallout of the royal commission closely, but at this early stage, we have not changed our positive long-term view of the four major banks.”

Mortgages and personal banking were probed during the first round of hearings late last month, where vertical integration in the home lending space was under the spotlight.

“The royal commission raised questions of ownership and whether customers understood who they were dealing with and what this could mean for the advice they were about to receive,” Loan Market executive chairman Sam White told Mortgage Business this week.

“This applies particularly to mortgage brokers that are owned partly or fully owned by a bank,” Mr White said. “As such, Loan Market believes that there should be greater disclosure by brokers and aggregators of their ownership structure.”

[Related: Banker misconduct not a threat to stability: Morrison]

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Analyst worried about vertical integration amid RC revelations
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