The Department of Treasury has launched a consultation on how it could implement commissioner Kenneth Hayne’s recommendation that industry codes of practice should contain “enforceable code provisions”, which are “provisions in respect of which a contravention will constitute a breach of the law”.
The final royal commission report states that this would provide “certainty and enforceability to key code provisions that govern the terms of the contract”.
In addition to including enforceable provisions in industry codes, the commissioner proposed in the final royal commission report that the law be amended to include remedies for code breaches, based on those set out in 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 (AFCA).
He also suggested 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”.
The corporate regulator’s power to approve codes should also be extended to codes relating to all entities regulated by the Australian Prudential Regulation Authority, as well as Australian Credit Licence holders, according to the final royal commission 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, the commissioner also advised 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.
Noting that industry codes "are vitally important in promoting best practice and raising standards", Treasurer Josh Frydenberg said the government accepts the royal commission's recommendations, including the development of "voluntary codes that go beyond the requirements of the law".
"In his report, Commissioner Hayne also noted the benefits of voluntary codes in harnessing the views and collective will of industry," Mr Frydenberg's statement reads.
According to the consultation paper released by Treasury on Monday (18 March), there are 17 questions to be discussed in the consultation, such as:
- What criteria should ASIC consider when approving voluntary codes?
- Should subscribing to certain approved codes be a condition of certain licences?
- When should the government prescribe a mandatory financial services industry code?
- What are the appropriate factors to be considered in deciding whether a mandatory code ought to be imposed on a particular part of the financial sector by government?
- What level of supervision and compliance monitoring for codes should there be?
- Should ASIC have similar enforcement powers to the Australian Competition and Consumer Commission in Part IVB of the Competition and Consumer Act in relation to financial services industry codes?
- Should only egregious, ongoing or systemic breaches of the enforceable provisions of an industry code attract a civil penalty?
Commenting on the launch of the consultation, ABA chief executive Anna Bligh noted that the Code of Banking Practice – the updated version of which is coming into effect on 1 July – is “already enforceable as relevant clauses form part of a customer’s contract”, but said that the banking industry is willing to work with the government further on enforcement.
“The new code was the first industry code to be approved by ASIC under Regulatory Guide 183. The code itself is currently enforceable through the courts and the Australian Financial Complaints Authority, as it forms part of a customer’s contract with their bank," the ABA’s statement released on Monday reads.
“The Banking Code of Practice is the standard used by AFCA when assessing disputes between a customer and credit provider, regardless of whether they are a member of the Australian Banking Association.”
Treasury is accepting submissions to the consultation by Friday, 12 April 2019.