Consumer Protection in the Communications Industry: Moving to best practice - Issues Paper (July 2008)

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3.1. Financial services

The financial services sector is probably the most mature sector in terms of co-regulation. Codes of conduct are not specifically required by law, but they are common-place. There is significant integration of the legislation, the regulator, industry self regulation and external dispute resolution.

Unlike the telecommunications sector, there are only a small number of comprehensive codes – typically one per industry group (e.g. banking, general insurance). An additional code is in place for electronic transactions that involve the entire sector – the EFT Code of Conduct.[25]

The Australian Securities and Investments Commission has a general monitoring function for all codes and has the option of approving codes under Regulatory Guide 183.[26] In recent years the regulator has allowed industry to develop alternative independent compliance monitoring – for example the Code of Banking Practice is now monitored by an independent Code Compliance Monitoring Committee.[27] Code compliance is the subject of high profile public reports (e.g. the detailed reports published by ASIC regarding the EFT Code) and also regular public workshops and seminars. Regular independent reviews of the Codes are also a feature.

Regulatory Guide 183 sets out a number of threshold criteria for the approval of industry codes:

RG 183.5 We believe that the primary role of a financial services sector code is to raise standards and to complement the legislative requirements that already set out how product issuers and licensed firms (and their representatives) deal with consumers. We expect an effective code to do at least one of the following:

(a) address specific industry issues and consumer problems not covered by legislation;

(b) elaborate upon legislation to deliver additional benefits to consumers; and/or

(c) clarify what needs to be done from the perspective of a particular industry or practice or product to comply with legislation.

Once these threshold criteria have been passed, the regulatory guide then sets out a series of more detailed criteria for approval. A code must:

• Be freestanding and written in plain English;
• Incorporate a comprehensive body of rules (not a single issue guideline);
• Be enforceable against subscribers;
• Be developed in a consultative way with key stakeholders;
• Be effectively and independently administered;
• Be adequately promoted;
• Have monitored and enforced compliance;
• Contain appropriate remedies and sanctions; and
• Be subject to a mandatory review every three years.

An important component of the co-regulatory approach in the financial services sector is that the basic consumer protection provisions are contained in legislation. Codes of conduct can provide further enhancement or elaboration of these protections, but they cannot weaken them. For example, the General Insurance Code of Practice cannot derogate from the detailed consumer protection provisions in the Insurance Contracts Act 1984.

The criteria for approving and reviewing codes in the financial services sector have a stronger emphasis on delivering enforceable consumer protections – and less emphasis on process issues.

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[25] Australian Securities and Investments Commission, Electronic Funds Transfer Code of Conduct, 18 March 2002, <http://www.asic.gov.au/asic/pdflib.nsf/LookupByFileName/eft_code.pdf/$file/eft_code.pdf>.

[26] Australian Securities and Investments Commission, Regulatory Guide 183 (RG 183), 4 March 2005, <http://www.asic.gov.au/asic/pdflib.nsf/LookupByFileName/ps183.pdf/$file/ps183.pdf>.

[27] <http://www.bankcodecompliance.org/>

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