Codes of Conduct in Financial Services Regulation
Added on 2022-05-17
37 Pages19253 Words21 Views
Gail Pearson'
Codes of conduct in financial services regulation are used to
draw industry into the regulatory system. This enrolment
presupposes a consonance between regulatory objectives and
the industry bodies. This historical examination of the evolution of
particular codes suggests that this is not always so. Further, by
maintaining a code of conduct, industry can retain a certain
degree of autonomy and regulators can shift regulatory risk to
industry. Yet by supporting a system of codes of conduct dealing
with relations with consumers of financial services, industry is
also 'responsibilised' in its contact with consumers. This article
traces the legislative and regulatory approaches to financial
services codes of practice as a form of self-regulation and an
aspiration for best practice. It examines the safeguards built into
the approvals process to ensure that these self-regulatory rules
are effective and that consumers can trust the code system. And
it suggests 'light-handedly' that we should be aware of arguments
for a retreat from 'direct' regulationto codes.
Introduction
The website of the financial services regulator, the Australian Securities and
Investments Commission (ASIC), displays six 'voluntary' industry codes of
practice which complement the Financial Services Regulation (FSR)
legislative regime.' These are the Code of Banking Practice, Credit Union
Code of Practice and the Electronic Funds Transfer Code of Practice, the
General Insurance Code of Practice and the General Insurance Brokers' Code
of Practice, and the Financial Planners Code of Ethics and Rules of
Professional Conduct. ASIC also includes on its website the Internet Code of
conduct.'
Each of these codes deals with slightly different aspects of the conduct
between a financial services provider and consumers of that service. The Code
of Banking Practice and the Credit Union Code of Practice deal with
disclosure of fees, changes to terms and conditions, rights of guarantors, and
* Business Law, Faculty of Economics and Business, University of Sydney.
' Australian Securities and Investment Commission (ASIC),
www .asic.gov.au/asic/asic~polprac.nsf/byheadline/Codes+of+practice?openDocu
ment, 4 November 2006.
The ASIC website also mistakenly includes the Consumer Credit Code, which is
not a code of practice but legislation by which the Queensland Act provides a
template code for the other states.
Codes of conduct in financial services regulation are used to
draw industry into the regulatory system. This enrolment
presupposes a consonance between regulatory objectives and
the industry bodies. This historical examination of the evolution of
particular codes suggests that this is not always so. Further, by
maintaining a code of conduct, industry can retain a certain
degree of autonomy and regulators can shift regulatory risk to
industry. Yet by supporting a system of codes of conduct dealing
with relations with consumers of financial services, industry is
also 'responsibilised' in its contact with consumers. This article
traces the legislative and regulatory approaches to financial
services codes of practice as a form of self-regulation and an
aspiration for best practice. It examines the safeguards built into
the approvals process to ensure that these self-regulatory rules
are effective and that consumers can trust the code system. And
it suggests 'light-handedly' that we should be aware of arguments
for a retreat from 'direct' regulationto codes.
Introduction
The website of the financial services regulator, the Australian Securities and
Investments Commission (ASIC), displays six 'voluntary' industry codes of
practice which complement the Financial Services Regulation (FSR)
legislative regime.' These are the Code of Banking Practice, Credit Union
Code of Practice and the Electronic Funds Transfer Code of Practice, the
General Insurance Code of Practice and the General Insurance Brokers' Code
of Practice, and the Financial Planners Code of Ethics and Rules of
Professional Conduct. ASIC also includes on its website the Internet Code of
conduct.'
Each of these codes deals with slightly different aspects of the conduct
between a financial services provider and consumers of that service. The Code
of Banking Practice and the Credit Union Code of Practice deal with
disclosure of fees, changes to terms and conditions, rights of guarantors, and
* Business Law, Faculty of Economics and Business, University of Sydney.
' Australian Securities and Investment Commission (ASIC),
www .asic.gov.au/asic/asic~polprac.nsf/byheadline/Codes+of+practice?openDocu
ment, 4 November 2006.
The ASIC website also mistakenly includes the Consumer Credit Code, which is
not a code of practice but legislation by which the Queensland Act provides a
template code for the other states.
debt collection. The General Insurance Code of Practice is concerned with
Buying Insurance, Insurance Claims, Responding to Catastrophes and
Disasters, Information and Education, Complaints Handling Procedures, and
Code Monitoring and Enforcement. The General Insurance Brokers Code of
Practice sets out rules on disclosure, renewal and cancellation of policies, and
policy documentation. The Financial Planners' Association Code of Ethics and
Rules of Professional Conduct deal with disclosure of fees and confidentiality.
The Electronic Funds Transfer Code of Practice deals with. ATMs, and
EFTPOS transactions, credit card transactions which are not signed for,
internet and telephone banking, and stored value facilities such as pre-paid
phone cards. It sets out disclosure obligations, liability for unauthorised
transactions, obligations about passwords, and complaints procedures. The
Internet Code of Conduct is a best-practice model for internet-based business
directed at consumer^.^
Depending on how it is viewed, the code of conduct is another spanner in
the 'regulatory toolkit' or another way to 'enrol' industry in its own
'decentred' regulation. Black argues that the term 'self-regulation' is not
analytically useful as, although 'self-regulatory' bodies may complement
government regulation, the term fails to capture the highly decentralised and
fragmentary nature of any regulatory system. Further, she suggests that to
name a system as 'hybrid' regulation is not sufficient. Black argues for an
'enrolment perspective' to portray the actors, their capacities and potential, and
the nature of their relationships with each other within a regulatory system.4
The industry code of conduct or code of practice does not stand alone. It
may be voluntary or mandatory, prescribed or approved.5 In this, it is a subject
of meta-regulation, the systematisation of regulation itself, another means to
check on the workings of industry.6 The privatelpublic systems of rules that
constitute a code of conduct are linked to that other privatelpublic locus of
regulation, the approved consumer dispute resolution scheme. The rationale for
this complex system of privatelpublic rules and dispute resolution is indeed to
find an informal inexpensive way to manage consumer redress. But, more
fundamentally, it is a means in the great search for compliance,7 itself a subset
of 'governance through rule-making'.8 Compliance, like faith, is a noun in
search of a verb, and we have to ask what it is that the providers of financial
services and products are asked to comply with.9 There is already a huge
volume of legal rules and regulations. There is 'principles-based' legislation
Commenting on e-regulation, see Kingsford Smith (2001),p 542.
Black (2003a),pp 63-91; Black (2003b),p 1.
See Trade Practices Act 1974 (Cth), ss 51ACA-51AE; Australian Securities and
Investments Commission Act 1998 (Cth), s 12FA (now repealed); Corporations
Act 2001 (Cth), s 1101A.
See Gunningham and Grabosky (1998);Parker (2002); Morgan (2003).
' On promoting the compliance culture, see Australian Law Reform Commission
(2002).
See Levi-Faur (2005), p 17.
Yeung (2004),p 11.
Buying Insurance, Insurance Claims, Responding to Catastrophes and
Disasters, Information and Education, Complaints Handling Procedures, and
Code Monitoring and Enforcement. The General Insurance Brokers Code of
Practice sets out rules on disclosure, renewal and cancellation of policies, and
policy documentation. The Financial Planners' Association Code of Ethics and
Rules of Professional Conduct deal with disclosure of fees and confidentiality.
The Electronic Funds Transfer Code of Practice deals with. ATMs, and
EFTPOS transactions, credit card transactions which are not signed for,
internet and telephone banking, and stored value facilities such as pre-paid
phone cards. It sets out disclosure obligations, liability for unauthorised
transactions, obligations about passwords, and complaints procedures. The
Internet Code of Conduct is a best-practice model for internet-based business
directed at consumer^.^
Depending on how it is viewed, the code of conduct is another spanner in
the 'regulatory toolkit' or another way to 'enrol' industry in its own
'decentred' regulation. Black argues that the term 'self-regulation' is not
analytically useful as, although 'self-regulatory' bodies may complement
government regulation, the term fails to capture the highly decentralised and
fragmentary nature of any regulatory system. Further, she suggests that to
name a system as 'hybrid' regulation is not sufficient. Black argues for an
'enrolment perspective' to portray the actors, their capacities and potential, and
the nature of their relationships with each other within a regulatory system.4
The industry code of conduct or code of practice does not stand alone. It
may be voluntary or mandatory, prescribed or approved.5 In this, it is a subject
of meta-regulation, the systematisation of regulation itself, another means to
check on the workings of industry.6 The privatelpublic systems of rules that
constitute a code of conduct are linked to that other privatelpublic locus of
regulation, the approved consumer dispute resolution scheme. The rationale for
this complex system of privatelpublic rules and dispute resolution is indeed to
find an informal inexpensive way to manage consumer redress. But, more
fundamentally, it is a means in the great search for compliance,7 itself a subset
of 'governance through rule-making'.8 Compliance, like faith, is a noun in
search of a verb, and we have to ask what it is that the providers of financial
services and products are asked to comply with.9 There is already a huge
volume of legal rules and regulations. There is 'principles-based' legislation
Commenting on e-regulation, see Kingsford Smith (2001),p 542.
Black (2003a),pp 63-91; Black (2003b),p 1.
See Trade Practices Act 1974 (Cth), ss 51ACA-51AE; Australian Securities and
Investments Commission Act 1998 (Cth), s 12FA (now repealed); Corporations
Act 2001 (Cth), s 1101A.
See Gunningham and Grabosky (1998);Parker (2002); Morgan (2003).
' On promoting the compliance culture, see Australian Law Reform Commission
(2002).
See Levi-Faur (2005), p 17.
Yeung (2004),p 11.
along with detailed rules, yet the regulator, ASIC, does have the capacity to
move flexibly and alter the law through the regulations to the ~ c t . "Thus
responsiveness and flexibility in detailed rule-making do not depend on rules
in codes of conduct. Why do we need these 'hybrid' systems of rules and
adjudication? What purpose do they serve? Should it not be enough to expect
the provider actors in the financial services sector to abide by the law? But can
we trust them to do so? If regulation and compliance are part of the search for
trust in business," is self-regulation through codes of practice simply another
technique in this quest? Or, to put this alternatively, in what way and for what
purpose are industry actors in financial services enrolled in FSR?
To some extent, the answers to these questions are historical. These
industry-based systems of code and dispute-resolution schemes developed on a
sectoral basis prior to the reform of the sector through FSR. The answer may
be that they have simply been incorporated into the new regulatory path and
drawn closer to the state by the requirement or opportunity for approval, and
the evolution of what is required for approval. Yet this is to misunderstand the
sector. These codes and dispute-resolution schemes are to do with consumers
or the legislative synonym, retail clients. Retail clients enter the market for
food, clothing, shelter and employment. These are matters that have long been
dealt with in the courts and specialist tribunals. Consumers are also in the
market for credit and retirement incomes. These too are dealt with in specialist
tribunals -namely the successors to the state Commercial Tribunals and the
commonwealth Superannuation Complaints Tribunal. The generic financial
services legislation itself deals extensively with disclosure and conduct
obligations for retail client protection.12 It seems mysterious that the banking
industry, the insurance industry and the managed investment funds industry
should require additional separate rules for standards of conduct and should
require separate venues to resolve disputed claims. The will to maintain
separateness may be treated anthropologically as the maintenance of a locus of
power.
It is curious that it is relations with consumers that have been preserved
for the code system. While it might be easy to say that industry has wanted to
manage this free of undue interference of the state, an alternate way to look at
this is to ask whether the state has wanted this area for regulation. It is reported
that 'self-regulation' is suitable if there are no great public interest issues at
stake.13Yet, as argued elsewhere, there are large issues in the transfer of risks
in the financial sector to consumer^.'^ If the compliance project is a response
'O Principles-based regulation refers to an outcomes approach to regulation as
opposed to a means approach secured through detailed rules. An example of an
outcome approach would be the licence obligation in the Corporations Act,
s 912A(l)(e) to maintain competence to provide financial services. ASIC may
vary legislative provisionsby regulation: Corporations Act, s1020G(l)(c).
l1 Power (1999);Collier (2001),p 191 refers to a function of self-regulationbeing to
'instill confidence in market stakeholders(including consumers)'.
" CorporatzonsAct 2001 (Cth),Ch 7.
l' Australian Law Reform Commission (2002),p 30.
l4 Pearson (2006),p 99.
move flexibly and alter the law through the regulations to the ~ c t . "Thus
responsiveness and flexibility in detailed rule-making do not depend on rules
in codes of conduct. Why do we need these 'hybrid' systems of rules and
adjudication? What purpose do they serve? Should it not be enough to expect
the provider actors in the financial services sector to abide by the law? But can
we trust them to do so? If regulation and compliance are part of the search for
trust in business," is self-regulation through codes of practice simply another
technique in this quest? Or, to put this alternatively, in what way and for what
purpose are industry actors in financial services enrolled in FSR?
To some extent, the answers to these questions are historical. These
industry-based systems of code and dispute-resolution schemes developed on a
sectoral basis prior to the reform of the sector through FSR. The answer may
be that they have simply been incorporated into the new regulatory path and
drawn closer to the state by the requirement or opportunity for approval, and
the evolution of what is required for approval. Yet this is to misunderstand the
sector. These codes and dispute-resolution schemes are to do with consumers
or the legislative synonym, retail clients. Retail clients enter the market for
food, clothing, shelter and employment. These are matters that have long been
dealt with in the courts and specialist tribunals. Consumers are also in the
market for credit and retirement incomes. These too are dealt with in specialist
tribunals -namely the successors to the state Commercial Tribunals and the
commonwealth Superannuation Complaints Tribunal. The generic financial
services legislation itself deals extensively with disclosure and conduct
obligations for retail client protection.12 It seems mysterious that the banking
industry, the insurance industry and the managed investment funds industry
should require additional separate rules for standards of conduct and should
require separate venues to resolve disputed claims. The will to maintain
separateness may be treated anthropologically as the maintenance of a locus of
power.
It is curious that it is relations with consumers that have been preserved
for the code system. While it might be easy to say that industry has wanted to
manage this free of undue interference of the state, an alternate way to look at
this is to ask whether the state has wanted this area for regulation. It is reported
that 'self-regulation' is suitable if there are no great public interest issues at
stake.13Yet, as argued elsewhere, there are large issues in the transfer of risks
in the financial sector to consumer^.'^ If the compliance project is a response
'O Principles-based regulation refers to an outcomes approach to regulation as
opposed to a means approach secured through detailed rules. An example of an
outcome approach would be the licence obligation in the Corporations Act,
s 912A(l)(e) to maintain competence to provide financial services. ASIC may
vary legislative provisionsby regulation: Corporations Act, s1020G(l)(c).
l1 Power (1999);Collier (2001),p 191 refers to a function of self-regulationbeing to
'instill confidence in market stakeholders(including consumers)'.
" CorporatzonsAct 2001 (Cth),Ch 7.
l' Australian Law Reform Commission (2002),p 30.
l4 Pearson (2006),p 99.
by regulators to the increased ability to detect contraventions and the inability
of the system to cope with enforcement with respect to each and every
contravention then the risk project for regulators is about assessing the risks of
non-compliance by the regulated.15 But there are further questions: what risks
should be included in a risk management framework and what risks should a
regulator be accountable for?16 If some rules and consumer dispute resolution
are substantially left to industry, this appears to be risk-shifting. So, through
codes, financial services industry actors are both 'enrolled' in the regulatory
system and, through that enrolment, themselves 'responsibilised"7 for their
relations with consumers.
To partially answer the questions posed above, rule-making and setting
standards of conduct through codes of practice are ways to engage or enrol
industry in meeting the desired regulatory outcomes expressed in legislation
and thus necessarily hybrid. By referring to higher standards than that required
by legislative rules, the code systems also foster changes in the behaviour of
code adherents.18Functional neutrality or the like regulation of like products is
a foundation principle of FSR, yet the codes reflect the 'semi-autonomous'
spheres of different types of products and institutions -insurance, banking,
credit unions. Thus the codes reflect a pre-FSR system and to some extent
entrench this, yet paradoxically at the same time draw the actors within these
industries into the post-FSR world and its creation of new norms of conduct.
ASIC's appeals to 'rationalisation' and 'harmonisation' of codes speak to both
norms and post-product functional neutrality. By focusing on the consumer or
retail client, the codes address inadequacies in the different segments of the
market for financial services while moving those industries towards practices
for a more efficient and fair market.lg Through self-regulation, industry
maintains a degree of autonomy and power. Yet, by accepting or even
embracing self-regulation of practices that may have high-risk consequences
for individual consumers, industry -rather than the regulator -has taken on
the risk of (self-) regulatory failure. It is in this way that FSR, through the
codes, has encouraged industry to take responsibility for internalising desired
norms of conduct, and for the risk of market failure with respect to retail client
relations. The acceptance of this responsibility and risk should persuade retail
clients to trust financial services actors. And it is here that the transparency,
accountability and review of code systems come in.
l 5 See Australian Law Reform Commission (2002), pp 143, 144.
l6 See Mikes (2005), p 2, where this question is posed for a different purpose.
l7 The term 'responsibilisation' is usually used in connection with consumers and
engages notions of risk-shifting to consumers. See, for instance, Ramsay (2006),
p 13; Power (2005), p 256.
l 8 On regulation and the role of non-state actors in modifying behaviour, see Black
(2002), p 170; Hutter (2006). Note Williams' critique of the possibility of
decentred regulation producing conformity to norms or rules and his emphasis on
competition for institutional advantage between those within the regulatory
networks: Williams (2006), p 212.
l9 See the FSR objectives reflected in the Corporations Act ZOO1 (Cth), s 760A.
of the system to cope with enforcement with respect to each and every
contravention then the risk project for regulators is about assessing the risks of
non-compliance by the regulated.15 But there are further questions: what risks
should be included in a risk management framework and what risks should a
regulator be accountable for?16 If some rules and consumer dispute resolution
are substantially left to industry, this appears to be risk-shifting. So, through
codes, financial services industry actors are both 'enrolled' in the regulatory
system and, through that enrolment, themselves 'responsibilised"7 for their
relations with consumers.
To partially answer the questions posed above, rule-making and setting
standards of conduct through codes of practice are ways to engage or enrol
industry in meeting the desired regulatory outcomes expressed in legislation
and thus necessarily hybrid. By referring to higher standards than that required
by legislative rules, the code systems also foster changes in the behaviour of
code adherents.18Functional neutrality or the like regulation of like products is
a foundation principle of FSR, yet the codes reflect the 'semi-autonomous'
spheres of different types of products and institutions -insurance, banking,
credit unions. Thus the codes reflect a pre-FSR system and to some extent
entrench this, yet paradoxically at the same time draw the actors within these
industries into the post-FSR world and its creation of new norms of conduct.
ASIC's appeals to 'rationalisation' and 'harmonisation' of codes speak to both
norms and post-product functional neutrality. By focusing on the consumer or
retail client, the codes address inadequacies in the different segments of the
market for financial services while moving those industries towards practices
for a more efficient and fair market.lg Through self-regulation, industry
maintains a degree of autonomy and power. Yet, by accepting or even
embracing self-regulation of practices that may have high-risk consequences
for individual consumers, industry -rather than the regulator -has taken on
the risk of (self-) regulatory failure. It is in this way that FSR, through the
codes, has encouraged industry to take responsibility for internalising desired
norms of conduct, and for the risk of market failure with respect to retail client
relations. The acceptance of this responsibility and risk should persuade retail
clients to trust financial services actors. And it is here that the transparency,
accountability and review of code systems come in.
l 5 See Australian Law Reform Commission (2002), pp 143, 144.
l6 See Mikes (2005), p 2, where this question is posed for a different purpose.
l7 The term 'responsibilisation' is usually used in connection with consumers and
engages notions of risk-shifting to consumers. See, for instance, Ramsay (2006),
p 13; Power (2005), p 256.
l 8 On regulation and the role of non-state actors in modifying behaviour, see Black
(2002), p 170; Hutter (2006). Note Williams' critique of the possibility of
decentred regulation producing conformity to norms or rules and his emphasis on
competition for institutional advantage between those within the regulatory
networks: Williams (2006), p 212.
l9 See the FSR objectives reflected in the Corporations Act ZOO1 (Cth), s 760A.
This paper addresses the evolution of thinking on codes of conduct in
Australian regulatory circles, and the place of the code of conduct in financial
services regulation. It examines the legislative framework for financial
services codes, the background to codes as a form of regulation, early financial
services and small business codes, the disillusion with codes due to problems
with enforcing their provisions, and changes in the approach to regulator
approval of codes. The latter traces changes in the view of codes from them
being seen as a means to supplement or flesh-out legislative rules to a focus on
codes as enhancing best practice. Within this, there are themes of the ability of
code proponents to comply with the code, contractual enforceability,
harmonisation between financial services codes, and signalling that consumers
may repose trust and confidence in regulator-approved codes. The paper looks
at the way certain financial services codes have evolved through review and
revisions, and the attempts towards a new code in an industry seemingly
reluctant to be enrolled.
There is another series of questions about codes, their rules, the
adjudication of claims and the making of determinations that are not directly
addressed here. This requires a detailed study over time of the nature of the
claims and an analysis of determinations by the disputes schemes or
ombudsman. These are questions about how hybrid privatelpublic rule-making
and judging fit, in a democratic system, with legislative rules, judicial
decision-making, and the evolution of law.
Codes in the LegislativeScheme for Financial Services
The endpoint, at this moment in time, is that ASIC has the power to approve
codes of practice.20ASIC is not required to approve financial services codes
and is empowered to do so only on application. Unlike the Australian
Competition and Consumer Commission, this does not include the power to
mandate codes of conduct. A decision to approve or disapprove a code is not
re~iewable.~'To gain ASIC's approval, codes must be enforceable and subject
to mandatory revision every three years.22Financial services providers who
deal with 'retail clients' must have internal dispute-resolution systems and
must be members of an external dispute resolution scheme that is approved by
ASIC, the regulator.23This is a condition of an AFSL licence, and breach of a
licence obligation may result in revocation of the licence. ASIC has
legislatively conferred power to approve external dispute resolution schemes.24
Zo Corporations Act 2001 (Cth), s 1101A.
" A code approval decision is not reviewable by the Administrative Appeals
Tribunal: Corporations Act 2001 (Cth), ss 1317B, 1317C(ge).
22 ASIC (2005) 'Policy Statement 183, Approval of Financial Services Sector Codes
of Conduct'.
'' Corp~rationsAct 2001 (Cth), s 912A(l)(g). For an analysis of some schemes, see
O'Shea (2004), pp 156-69.
24 Corporations Act 2001 (Cth), s 912A(2). Regulation 7.6.02 sets out the matters
that ASIC must take into account when making standards for internal dispute
resolution schemes and the matters that must be taken into account by ASIC when
Australian regulatory circles, and the place of the code of conduct in financial
services regulation. It examines the legislative framework for financial
services codes, the background to codes as a form of regulation, early financial
services and small business codes, the disillusion with codes due to problems
with enforcing their provisions, and changes in the approach to regulator
approval of codes. The latter traces changes in the view of codes from them
being seen as a means to supplement or flesh-out legislative rules to a focus on
codes as enhancing best practice. Within this, there are themes of the ability of
code proponents to comply with the code, contractual enforceability,
harmonisation between financial services codes, and signalling that consumers
may repose trust and confidence in regulator-approved codes. The paper looks
at the way certain financial services codes have evolved through review and
revisions, and the attempts towards a new code in an industry seemingly
reluctant to be enrolled.
There is another series of questions about codes, their rules, the
adjudication of claims and the making of determinations that are not directly
addressed here. This requires a detailed study over time of the nature of the
claims and an analysis of determinations by the disputes schemes or
ombudsman. These are questions about how hybrid privatelpublic rule-making
and judging fit, in a democratic system, with legislative rules, judicial
decision-making, and the evolution of law.
Codes in the LegislativeScheme for Financial Services
The endpoint, at this moment in time, is that ASIC has the power to approve
codes of practice.20ASIC is not required to approve financial services codes
and is empowered to do so only on application. Unlike the Australian
Competition and Consumer Commission, this does not include the power to
mandate codes of conduct. A decision to approve or disapprove a code is not
re~iewable.~'To gain ASIC's approval, codes must be enforceable and subject
to mandatory revision every three years.22Financial services providers who
deal with 'retail clients' must have internal dispute-resolution systems and
must be members of an external dispute resolution scheme that is approved by
ASIC, the regulator.23This is a condition of an AFSL licence, and breach of a
licence obligation may result in revocation of the licence. ASIC has
legislatively conferred power to approve external dispute resolution schemes.24
Zo Corporations Act 2001 (Cth), s 1101A.
" A code approval decision is not reviewable by the Administrative Appeals
Tribunal: Corporations Act 2001 (Cth), ss 1317B, 1317C(ge).
22 ASIC (2005) 'Policy Statement 183, Approval of Financial Services Sector Codes
of Conduct'.
'' Corp~rationsAct 2001 (Cth), s 912A(l)(g). For an analysis of some schemes, see
O'Shea (2004), pp 156-69.
24 Corporations Act 2001 (Cth), s 912A(2). Regulation 7.6.02 sets out the matters
that ASIC must take into account when making standards for internal dispute
resolution schemes and the matters that must be taken into account by ASIC when
The industry codes of practice and the external dispute-resolution schemes are
linked. For instance, the Code of Banking Practice, which further regulates
disclosure and banking contracts and guarantees, is linked to the Banking and
Financial Services Ombudsman. The Financial Planners Code of Ethics and
Rules of Professional Conduct is linked to the Financial Industry Complaints
While there is a close relationship in the regulatory scheme between
codes of practice and external dispute resolution, the codes do not subsist
solely for the purpose of dispute resolution, though the set of rules within the
code is also amenable to the relevant dispute-resolution procedures.
ASIC has approved seven dispute resolution bodiesz6 and at least one
industry code of practice.27 This power of approval means that the codes of
practice are potentially more than-v~luntaril~agreedindustry-based rules and
that the approved industry dispute resolution schemes have the imprimatur of
government in their exercise of administrative power. Although the ASIC
website links to the text of the codes of practice maintained by the relevant
industry body, the industry bodies responsible for the codes of practice do not
link to ASIC.
An Historical Background to Codes of Practice as a Form of
Regulation
The use of codes of practice in the financial services context must be viewed
against the background of the code as a form of regulation in the economy
overall. The modern enthusiasm for codes of practice derives from national
deciding to approve an external dispute-resolution scheme. The latter matters are
the accessibility, independence, fairness, accountability, efficiency, effectiveness
of the ADR scheme and other relevant matters: Reg 7.6.02 (3). Note also
Australian Standard 4608, to which the Australian Banking Industry Ombudsman
contributed. See Lancken, (2001),fn 3.
'' Other Codes of Conduct are the Credit Union Code of Practice, the Electronic
Funds Transfer Code of Practice, the General Insurance Code of Practice, the
General InsuranceBrokers Code of Practice and the Internet Code of Conduct.
'"here are currently seven ASIC approved external dispute-resolution schemes:
Financial Industry Complaints Service, Insurance Ombudsman Service (previously
Insurance Enquiries and Complaints Ltd), Banking and Financial Services
Ombudsman (previously the Australian Banking Industry Ombudsman), Credit
Union Dispute Resolution Centre, Insurance Brokers Disputes Limited, Financial
Cooperative Dispute Resolution Scheme, Credit Ombudsman Service (previously
called the Mortgage Industry Ombudsman Service). The Superannuation
Complaints Tribunal is a body set up by statute.
" In July 2000, ASIC approved the General Insurance Code of Practice pursuant to
the Australian Securities and Investment Commission Act 2001 (Cth), sl2FA and
Insurance Act 1973 (Cth), s 113. See Insurance Council of Australia, 'Code of
Practice',
%20Years%22. The IABA expected the General Insurance Brokers' Code of
Conduct to be approved in 2003.
linked. For instance, the Code of Banking Practice, which further regulates
disclosure and banking contracts and guarantees, is linked to the Banking and
Financial Services Ombudsman. The Financial Planners Code of Ethics and
Rules of Professional Conduct is linked to the Financial Industry Complaints
While there is a close relationship in the regulatory scheme between
codes of practice and external dispute resolution, the codes do not subsist
solely for the purpose of dispute resolution, though the set of rules within the
code is also amenable to the relevant dispute-resolution procedures.
ASIC has approved seven dispute resolution bodiesz6 and at least one
industry code of practice.27 This power of approval means that the codes of
practice are potentially more than-v~luntaril~agreedindustry-based rules and
that the approved industry dispute resolution schemes have the imprimatur of
government in their exercise of administrative power. Although the ASIC
website links to the text of the codes of practice maintained by the relevant
industry body, the industry bodies responsible for the codes of practice do not
link to ASIC.
An Historical Background to Codes of Practice as a Form of
Regulation
The use of codes of practice in the financial services context must be viewed
against the background of the code as a form of regulation in the economy
overall. The modern enthusiasm for codes of practice derives from national
deciding to approve an external dispute-resolution scheme. The latter matters are
the accessibility, independence, fairness, accountability, efficiency, effectiveness
of the ADR scheme and other relevant matters: Reg 7.6.02 (3). Note also
Australian Standard 4608, to which the Australian Banking Industry Ombudsman
contributed. See Lancken, (2001),fn 3.
'' Other Codes of Conduct are the Credit Union Code of Practice, the Electronic
Funds Transfer Code of Practice, the General Insurance Code of Practice, the
General InsuranceBrokers Code of Practice and the Internet Code of Conduct.
'"here are currently seven ASIC approved external dispute-resolution schemes:
Financial Industry Complaints Service, Insurance Ombudsman Service (previously
Insurance Enquiries and Complaints Ltd), Banking and Financial Services
Ombudsman (previously the Australian Banking Industry Ombudsman), Credit
Union Dispute Resolution Centre, Insurance Brokers Disputes Limited, Financial
Cooperative Dispute Resolution Scheme, Credit Ombudsman Service (previously
called the Mortgage Industry Ombudsman Service). The Superannuation
Complaints Tribunal is a body set up by statute.
" In July 2000, ASIC approved the General Insurance Code of Practice pursuant to
the Australian Securities and Investment Commission Act 2001 (Cth), sl2FA and
Insurance Act 1973 (Cth), s 113. See Insurance Council of Australia, 'Code of
Practice',
%20Years%22. The IABA expected the General Insurance Brokers' Code of
Conduct to be approved in 2003.
and international trade practices or fair trading regulatory approaches. Yet the
systematisation of rules by and for traders is not new. In business, the
voluntary code of practice or system of rules or standards has been with us at
least since the early commercial codes of the Mediterranean and later ~ u r o ~ e . ~ '
These progenitors of the Law Merchant facilitated trade and guided dispute
resolution. The fashion for codes of practice in Australia is of more recent
origin. It arose out of a conjunction of consumer regulators seeking to engage
with business through co-regulation, and the search within some industries to
find efficient methods of doing business across the industry. Since its late
twentieth century inception in Australia, the code of practice has been linked to
the resolution of disputes either between code members of the same industry or
between members of the industry and consumers. The evolution of thinking
about rules in codes as a form of regulation reflects concern to tread lightly in
business regulation, the assimilation of small business protections with
consumer protection and provision of a forum for alternative dispute
resolution.
Some sectors, such as the media industry, had long regulated themselves
through a code. The media codes,29which were first authorised by the Trade
Practices Commission in 1974 to overcome any issue of anti-competitiveness,
streamlined systems and helped reduce costs in the industry by preventing
television advertisements against agreed standards and the law, and provided
for public complaints.
In 1988, the then Trade Practices Commission and the state consumer
affairs agencies agreed to promote codes of practice in industry and viewed
this as a means of protecting the public intere~t.~'Not only did this result in a
proliferation of codes particularly in marketing and the provision of services, it
also resulted in legislative changes to take account of codes. In New South
Wales, Part 7 was inserted into the Fair Trading Act 1987 (NSW) to provide
for mandatory codes of practice. Codes such as the Retirement Village
Industry Code were made under section 75(1) of the Fair Trading Act 1989
and complemented legislation regulating these industries. Two other
mandatory codes were prescribed.31At a national level, the first Franchising
Code of Practice of 1992 was an attempt to solve what was then an intractable
problem of regulation of a new dynamic form of business relationship by
making the industry responsible for itself.32
28 See, for instance, Baker (1979)
" See Pearson (1999), pp 331-60.
30 Commonwealth, state and territory consumer affairs agencies mimeo (1991), TPC
Guide to Codes of Conduct: Draft for comment.
3 1 The Caravan and Relocatable Homes Park Industry Code of Practice Regulation
1992, s 7 , Residential Tenancies Act 1987; the Education (Export) Industry Code
of Practice 1990.
" See House of Representatives Standing Committee on Industry, Science and
Technology, Finding a Balance: Towards Fair Trading in Australia May (1997),
p 85f.
systematisation of rules by and for traders is not new. In business, the
voluntary code of practice or system of rules or standards has been with us at
least since the early commercial codes of the Mediterranean and later ~ u r o ~ e . ~ '
These progenitors of the Law Merchant facilitated trade and guided dispute
resolution. The fashion for codes of practice in Australia is of more recent
origin. It arose out of a conjunction of consumer regulators seeking to engage
with business through co-regulation, and the search within some industries to
find efficient methods of doing business across the industry. Since its late
twentieth century inception in Australia, the code of practice has been linked to
the resolution of disputes either between code members of the same industry or
between members of the industry and consumers. The evolution of thinking
about rules in codes as a form of regulation reflects concern to tread lightly in
business regulation, the assimilation of small business protections with
consumer protection and provision of a forum for alternative dispute
resolution.
Some sectors, such as the media industry, had long regulated themselves
through a code. The media codes,29which were first authorised by the Trade
Practices Commission in 1974 to overcome any issue of anti-competitiveness,
streamlined systems and helped reduce costs in the industry by preventing
television advertisements against agreed standards and the law, and provided
for public complaints.
In 1988, the then Trade Practices Commission and the state consumer
affairs agencies agreed to promote codes of practice in industry and viewed
this as a means of protecting the public intere~t.~'Not only did this result in a
proliferation of codes particularly in marketing and the provision of services, it
also resulted in legislative changes to take account of codes. In New South
Wales, Part 7 was inserted into the Fair Trading Act 1987 (NSW) to provide
for mandatory codes of practice. Codes such as the Retirement Village
Industry Code were made under section 75(1) of the Fair Trading Act 1989
and complemented legislation regulating these industries. Two other
mandatory codes were prescribed.31At a national level, the first Franchising
Code of Practice of 1992 was an attempt to solve what was then an intractable
problem of regulation of a new dynamic form of business relationship by
making the industry responsible for itself.32
28 See, for instance, Baker (1979)
" See Pearson (1999), pp 331-60.
30 Commonwealth, state and territory consumer affairs agencies mimeo (1991), TPC
Guide to Codes of Conduct: Draft for comment.
3 1 The Caravan and Relocatable Homes Park Industry Code of Practice Regulation
1992, s 7 , Residential Tenancies Act 1987; the Education (Export) Industry Code
of Practice 1990.
" See House of Representatives Standing Committee on Industry, Science and
Technology, Finding a Balance: Towards Fair Trading in Australia May (1997),
p 85f.
The First Financial Services Codes
The first financial services code was promulgated in 1 9 8 9 . ~ ~Australia adopted
electronic banking from the late 1970s. In December 1989, the Electronic
Funds Transfer Code of Practice came into effect and provided that card
issuers should have clear terms of use and warrant that they would comply
with the code.34 The code in effect provided standard form terms for the
ont tract.^' This code grew out of an earlier 1986 document, Recommended
Procedures to Govern the Relationship Between Users and Providers of
Electronic Funds Transfer Systems, which was developed through cooperation
with a range of government agencies.76This code was first reviewed in 1998.~'
An ADR scheme for banking services, the Australian Banking Ombudsman,
was established in May 1989 and come into operation in June1990 as a result
of the influence of the British Banking Ombudsman and the banks' recognition
that they needed to improve their image and s e r ~ i c e . ~ '
In November 1993, the Australian Bankers' Association released the
voluntary Banking Code of Practice. This was controversial, as consumer
groups claimed that the government had given ownership of the code to the
banks. The impetus for this code had come from a parliamentary inquiry
(Martin Committee) into the banking system that supported legislative
codification of banking law and recommended a joint project between the
Trade Practices Commission and the Australian Law Reform Commission to
develop a code.39 The Banking Code, which elaborated on existing legal
obligations between banker and customer, provided that customer was a
consumer (an individual acquiring a banking service exclusively for his or her
own private or domestic use),40 contained three parts: Disclosures; Principles
of Conduct; and Resolution of Disputes. An important part of this code
For another account of some of these codes, see Lanyon (2001).
Electronic Funds Transfer Code of Conduct 1989, Austrakan Securztzes and
Investments. CornrnrssronAct 1989 (Cth). On the EFT Code, see Searles (1990).
Honduis (1991) argues that there is little difference between standard form
contract and codes both of which involve self-regulation. Honduis (1991).
These were Treasury, the RBA, Attorney-General's, Prime Minister and Cabinet,
the Trade Practices Commission and state consumer departments. House of
Representatives Standing Committee (1991), pp 385-87.
Weerasooria (2000), p 343. The code was expanded in 2001. Bollen (2001), p 14.
BFSO Ltd Review of the Banking and Financial Services Ombudsman Scheme
Background Paper, June 2004 pp 8,16; House of Representatives Standing
Committee (1991), pp 396-406; Tyree (2002), p 327;
www.bfso.org.au/ABIOWeb/ABIOWebSite.nsf/0/3E236F8E72980BD7CA25701
100056039/$file/Background+Paper+June+2004-V2 .pdf
House of Representatives Standing Committee (1991), pp 383-91,
Recommendations 75, 76.See also Viney, (2001) 'Review of the Code of Banking
Practice Issues Paper'.
Code of Banking Practice 1993, 1.1. The application of the Code could be
excluded if an individual made a written statement to the bank that the banking
service would not be acquired wholly and exclusively for private or domestic use.
The first financial services code was promulgated in 1 9 8 9 . ~ ~Australia adopted
electronic banking from the late 1970s. In December 1989, the Electronic
Funds Transfer Code of Practice came into effect and provided that card
issuers should have clear terms of use and warrant that they would comply
with the code.34 The code in effect provided standard form terms for the
ont tract.^' This code grew out of an earlier 1986 document, Recommended
Procedures to Govern the Relationship Between Users and Providers of
Electronic Funds Transfer Systems, which was developed through cooperation
with a range of government agencies.76This code was first reviewed in 1998.~'
An ADR scheme for banking services, the Australian Banking Ombudsman,
was established in May 1989 and come into operation in June1990 as a result
of the influence of the British Banking Ombudsman and the banks' recognition
that they needed to improve their image and s e r ~ i c e . ~ '
In November 1993, the Australian Bankers' Association released the
voluntary Banking Code of Practice. This was controversial, as consumer
groups claimed that the government had given ownership of the code to the
banks. The impetus for this code had come from a parliamentary inquiry
(Martin Committee) into the banking system that supported legislative
codification of banking law and recommended a joint project between the
Trade Practices Commission and the Australian Law Reform Commission to
develop a code.39 The Banking Code, which elaborated on existing legal
obligations between banker and customer, provided that customer was a
consumer (an individual acquiring a banking service exclusively for his or her
own private or domestic use),40 contained three parts: Disclosures; Principles
of Conduct; and Resolution of Disputes. An important part of this code
For another account of some of these codes, see Lanyon (2001).
Electronic Funds Transfer Code of Conduct 1989, Austrakan Securztzes and
Investments. CornrnrssronAct 1989 (Cth). On the EFT Code, see Searles (1990).
Honduis (1991) argues that there is little difference between standard form
contract and codes both of which involve self-regulation. Honduis (1991).
These were Treasury, the RBA, Attorney-General's, Prime Minister and Cabinet,
the Trade Practices Commission and state consumer departments. House of
Representatives Standing Committee (1991), pp 385-87.
Weerasooria (2000), p 343. The code was expanded in 2001. Bollen (2001), p 14.
BFSO Ltd Review of the Banking and Financial Services Ombudsman Scheme
Background Paper, June 2004 pp 8,16; House of Representatives Standing
Committee (1991), pp 396-406; Tyree (2002), p 327;
www.bfso.org.au/ABIOWeb/ABIOWebSite.nsf/0/3E236F8E72980BD7CA25701
100056039/$file/Background+Paper+June+2004-V2 .pdf
House of Representatives Standing Committee (1991), pp 383-91,
Recommendations 75, 76.See also Viney, (2001) 'Review of the Code of Banking
Practice Issues Paper'.
Code of Banking Practice 1993, 1.1. The application of the Code could be
excluded if an individual made a written statement to the bank that the banking
service would not be acquired wholly and exclusively for private or domestic use.
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