At the same time, it said AMP's rival, lower-value proposal wouldn't dampen competition. The Australian Competition and Consumer Commission (ACCC) said its main bone of contention for a NAB merger would be that retail investors would have substantially fewer platforms to access products, something that wouldn't happen under an AMP merger. The ACCC didn't have any competition concerns about superannuation, insurance and banking markets.

"Allowing NAB and AXA to merge would significantly diminish the incentives to compete for retail investment platforms used by investors that have complex financial needs," ACCC chairman Graeme Samuel said in a statement. "At the heart of the ACCC's decisions are concerns about innovation, and as a consequence future rigorous and effective competition between retail investment platforms."

Last December, NAB offered AXA AP investors either A$6.43 per share in cash, or $1.59 and 0.1745 of a NAB share per AXA AP share, trumping AMP's bid at A$6.22 a share. Under both deals, AXA SA, the French parent which owns 54% of the Asia Pacific business, would then buy back AXA AP's Asian business.

AXA AP's shares last traded at A$6.34 on the ASX.

The regulator said AXA was advanced in developing a low cost retail investment platform, and that this would probably improve the wealth management firm's ability to compete in the future. Until the platform was completed, the ACCC said it doubted existing rivals have an incentive to boost innovation in the near future.

Samuel also said there were high barriers to enter the wealth management sector. "Potential entrants need significant scale and established relationships with financial advisers to justify the initial and ongoing investments to enter with a platform," he said.

NAB said it was considering the decision before it will make any comment, while AMP welcomed the review. NAB has six weeks to persuade the regulator to change its mind before AXA AP, AXA SA or the bank can terminate the proposal after agreeing to "binding terms" last month.