Investment bank UBS' run-in with the Baird government over the sale of NSW's poles and wires electricity assets has sparked an extensive review of investment bank practices and the results are not pretty.

So ugly is the result the Australian Securities and Investments Commission has warned the people often known as the smartest men and women in the room it will take action against the culprits if the poor behaviour continues.

ASIC has been reviewing conflicts of interest at Australia's largest investment banks. Credit:Jim Rice

The ASIC review of investments banks found that not only do the heavyweights of Australia's financial system have difficulty in managing their conflicts of interest they also financially reward staff for potentially conflicted behaviour.

Managing conflicts of interest are crucial for investment banks because often one part of the bank is advising on an asset sale or an initial public offering while the bank's research arm is producing research for the investment banks' investor clients about the quality of the assets or the IPO.