ASIC says vertical integration in financial services a regulatory challenge

The vertical integration of banking, funds management and product distribution is one of the biggest challenges for a securities regulator, the Australian Securities and Investments Commission said in its 2014/15 Strategic Outlook

ASIC said the four major banks already accounted for around 60 per cent of total funds management industry revenue and it expected more consolidation in future.

"We remain concerned about the culture of financial services businesses and the incentive structures they use," ASIC said.

"Advisers may persuade investors to invest in in-house products when that may not be in their best interests."

Exacerbating this problem, hybrid securities and other new investment structures have grown in popularity since the financial crisis.

"It is likely that many investors and financial consumers underestimate or do not understand the risks," ASIC said.

"Concerning gaps remain in core areas of financial literacy, such as keeping track of finances, planning ahead and understanding risk and return."

ASIC said it also aimed to identify where inappropriate products were being sold.

"We will target add-on insurance, payday loans and leases for household goods, advice about self-managed superannuation funds," it said.