Banking royal commission report recommendations Hayne
(Image: AAP/Mick Tsikas)

Financial services royal commissioner Kenneth Hayne has struggled with, but ultimately failed to address, the systemic problems of Australia's financial industry. His recommendations for reform -- common sense in many areas, timid and tepid in others -- won't address the deep-seated faults that drive the industry-wide misbehaviour he uncovered. This is what he should have recommended:

Kill vertical integration

For a report so stridently hostile to conflicts of interest, Hayne fails to address the most basic one -- the vertically integrated structure of the financial industry. It's true that most of the big banks are abandoning vertical integration and what turned out to be the fool's gold of cross-selling, but the model is still embedded in some areas and could return in the future. Major financial institutions should have to pick one role -- basic banking, financial advice, wealth management -- and stick to that.