In his final report for the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, which was handed to the Governor-General on Friday (1 February) and publicly released on Monday (4 February), Commissioner Kenneth Hayne recommended that industry codes of practice include “enforceable code provisions”, which are “provisions in respect of which a contravention will constitute a breach of the law”.
Regarding the Australian Banking Association’s (ABA) Code of Banking Practice, the commissioner suggested that the ABA and the Australian Securities and Investments Commission (ASIC) take “all necessary steps to have the provisions that govern the terms of the contract made or to be made between the bank and the customer or guarantor designated as ‘enforceable code provisions’”.
He observed that industry codes “occupy an unusual place in the prescription of generally applicable norms of behaviour”, according to the commissioner.
“They are offered as a form of self-regulation by which industry participants set standards on how to comply with, and exceed, various aspects of the law,” he wrote in his final report.
The commissioner acknowledged the limitations and difficulties of self-regulation through industry codes, such as standards not always being adequate, not all industry participants subscribing to the code, “inadequate” monitoring and enforcement of compliance with the code, and “limited consequences” for breaches of the code.
Following the litany of abuses that were exposed through royal commission hearings, Commissioner Hayne suggested there could be “some doubt” around the reliability and enforcement of industry codes.
“The doubt arises, in part, because of the broad range of provisions contained in industry codes. Some are expressed as promises, capable of direct application to the relationship between an individual and a financial services entity. Others are not,” the royal commission report states.
“Uncertainty of this kind is highly undesirable. All participants in the financial services industry – including consumers – must know what rules govern their dealings.”
In addition to including enforceable provisions in industry codes, the commissioner proposed that the law be amended to include remedies for code breaches, based on those set out Part VI of the Competition and Consumer Act. Customers should also be able to elect which path to take in seeking redress, such as via external dispute resolution schemes such as the Australian Financial Complaints Authority.
In the final report, Commissioner Hayne said he expects there to be four steps in the “process of identifying and rendering enforceable the enforceable code provisions”:
- industry identifies the provisions that govern, or are intended to govern, the terms of the contract made or to be made between the financial services provider and the customer or guarantor;
- industry seeks ASIC’s approval of the provisions;
- ASIC reviews the enforceable provisions proposed by industry; and
- after ASIC approves the provisions, they become enforceable by statute, and customers are able to choose whether to enforce any breaches of those provisions through existing internal or external dispute resolution schemes or through the courts.
If the financial services industry does not present a subset of code provisions in a timely manner, Commissioner Hayne suggested that the establishment and imposition of a mandatory industry code be considered.
“The law should be amended to provide for the establishment and imposition of mandatory financial services industry codes, so that the relevant mechanisms are in existence should they need to be exercised,” he wrote in the final report.
The report also proposes that ASIC move beyond being the “passive recipient of industry proposals” and actively assess whether industry has identified enforceable code provisions and expressed them “clearly and unambiguously, so that they are capable of being enforced through the courts”.
“ASIC should continue to engage with industry until any defects are remedied,” the commission said, further recommending that the corporate regulator power to approve codes extends to codes relating to all entities regulated by the Australian Prudential Regulation Authority, as well as Australian Credit Licence holders.
Find out more about what the final report from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry means for the broking industry, and what the next steps are, by attending the Better Business Summit 2019.
Running across five different states every Thursday from 14 February, the Better Business Summit provides brokers with straight-talking, practical advice to help them grow and improve their businesses in this time of change.
Tickets are selling out – so make sure you secure your ticket today to stay ahead of the curve and prepare your business.
Tas Bindi is the features editor on the mortgage titles and writes about the mortgage industry, macroeconomics, fintech, financial regulation, and market trends.
Prior to joining Momentum Media, Tas wrote for business and technology titles such as ZDNet, TechRepublic, Startup Daily, and Dynamic Business.