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Industry can do better on conflicts: ASIC

By Tim Stewart
 — 1 minute read

A new report by ASIC has found that some conflicts of interest in vertically integrated firms “may not have been adequately managed”.

ASIC conducted a review of 12 vertically integrated Australian financial services licensees between 1 July 2013 and 30 September 2015.

The resulting report, Culture, conduct and conflicts of interest in vertically integrated businesses in the funds-management industry (REP 474), was released yesterday.


ASIC said the report was motivated in part by its September 2014 review of Platforms that are managed investment schemes (REP 408).

“REP 408 identified that one area that warranted further attention was conflicts management, particularly in relation to vertically integrated structures in the funds-management industry,” ASIC said.

The regulator was also motivated by the Financial System Inquiry which, according to ASIC, found “high concentration and trends towards increasing vertical integration in some sectors of the financial system have the potential to limit the benefits of competition in the future”.

There has also been “significant consolidation” in the funds management industry in Australia, said ASIC.

“In 2014, the four major banks accounted for around 60 per cent of total industry revenue,” the report said.

“We expect that there will be further industry consolidation over the period to the financial year 2018–19, as banks are likely to continue to increase their interests in smaller fund managers and superannuation funds.”

After reviewing the 12 vertically integrated licensees, ASIC found that on matters of “outsourcing, product selection, remuneration and board membership”, there may be areas where companies could “better demonstrate a commitment to managing and, where appropriate, avoiding conflicts of interest”.

In the regulator's opinion, businesses may well be adopting a set of policies “without sufficiently embedding the expectations of the policies in the business”.

"In some instances, conflicts of interest may not have been adequately managed, leading to concerns that an appropriate and, in some cases, necessary outcome may be to restructure business units, roles and remuneration structures to prevent the conflict of interest arising," ASIC said.

ASIC encouraged licensees to consider their own approach to conflict management in light of the report and findings, and called for an industry standard on conflict management. 

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Industry can do better on conflicts: ASIC

A new report by ASIC has found that some conflicts of interest in vertically integrated firms “may not have been adequately managed”.

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