Following Australia’s Royal Commission into the Misconduct of Banking, Superannuation and Financial Services Industry, the country’s four big banks have started dismantling their megabank structures in favour of simpler models and more narrowly focused subsidiaries, creating a space for international players to make a mark.
“The vertically integrated ‘megabank’ model has been built up over two decades. Now that’s being dismantled, certainly in Australia, as the major retail institutions go back to providing vanilla lending services,” Nathan Lynch, regional bureau chief, Asia Pacific, financial crime and risk at Thomson Reuters, told Asian Private Banker.
“As a result, we expect to see the growth of regional players that provide a narrower set of services across borders. The AIA acquisition of Commonwealth Bank’s insurance arm is a good example of this regional trend.”
In response to concerns arising from the inquiries into banking misconduct, many Australian financial institutions have begun to shift away from a holistic financial services model — which was popular until early 2018 — in order to eliminate potential conflicts of interest.
“The types of products and services that have given rise to conflicts run across insurance, wealth management, and superannuation. The heightened scrutiny of the sector over the next year will make it really hard to deliver those vertically integrated services and keep the regulators happy,” said Lynch.
Already, three of the four major Australian banks have started divesting their wealth management businesses — Westpac being the exception. Lynch believes that, as a result of the divestitures combined with HNWIs’ attraction to foreign brands and product offerings, international players will come to dominate the private banking scene Down Under.
“We foresee a trend where international banks will increasingly dominate the private banking industry. The Royal Commission is likely to be a major trigger in Australia, but this is happening across the Asia Pacific region,” he said.
The Royal Commission’s report will be published on 1 February and, according to Thomson Reuters’ State of Regulatory Reform 2019 report, regulators in Asia are likely to follow suit, putting increased emphasis on shaping proper banking culture in the local finance industry.
“Organisations will need to ask questions such as: is risk-taking part of your culture or not? Are you expecting your staff to proactively think about risk? What are the consequences to my organisation? It is about the levers which the organisation has in place, and about making sure that they are not only there but are also being used,” Keith Pogson, global assurance leader, banking and capital markets at EY in Hong Kong, said in the report.
Just last month, the Hong Kong Monetary Authority (HKMA) highlighted the Banking Royal Commission as a “review benchmark” when it announced its three-phase supervisory plan for assessing bank culture in the city.