Treasury's submission to the Financial Services Royal Commission in Background Paper 24: submission on key policy issues outlines (among other things) Treasury's views on whether the Royal Commission should recommend structural separation to prevent the inherent conflicts of interest in vertically integrated business models where financial advisers essentially work for the financial product manufacturers.

Treasury is of the view that structural reform is unwarranted at this time: 'Our judgment — subject to evidence in future hearings — is that recent structural changes in the industry, recently introduced or soon to be introduced reforms, other potential reforms the Commission could recommend, and heightened attention by firms and ASIC, should be sufficient to mitigate the systemic risks involved — subject to further ongoing scrutiny by regulators'.

Treasury adds that 'Structural separation would also be complex and disruptive, and could have unintended consequences'.

The paper goes on to explain that though there are potential advantages in structural separation there are also 'significant drawbacks' including the loss of economies of scale, convenience for consumers and better access to redress with vertically integrated firms as well as the risk of unintended consequences from individuals switching to rely on general advice or other (lower quality) advisers.

Superannuation sector? Treasury writes that if structural separation were to be considered in the superannuation sector, 'More work would be needed to determine the nature and extent of conflicted advice provided by the superannuation sector and whether it exists in intra-fund advice'. Treasury goes on to say that the 'Royal Commission hearings on superannuation may shed some light on this' and adds that the Australian Securities and Investments Commission (ASIC) 'will shortly undertake an examination of financial advice in the superannuation industry'. [Source: Treasury: Background Paper 24: Submission on key policy issues 26/07/2018]