Enforceability of Financial Industry Codes
The Government has begun the process of developing a new regulatory framework for financial services industry codes, with the publication this month by Commonwealth Treasury of a consultation paper Enforceability of financial services industry codes: Taking action on recommendation of 1.15 of the Financial Services Royal Commission.
The paper, which responds to a set of recommendations (Rec. 1.15) of the Financial Services Royal Commission Final Report, seeks feedback on several questions including issues associated with codes containing ‘enforceable code provisions’, whether subscribing to approved codes should be a licensing condition, and in what circumstances the government should prescribe a mandatory code. Other issues include how codes should be monitored, and what should be appropriate enforcement powers and remedies for breaches.
Feedback in response to the consultation paper is sought by 12 April 2019.
Background – the current self-regulatory regime
Codes of conduct or practice, developed by industry on a voluntary basis, have operated in financial services since the 1980s when the Code of Banking Practice, the Credit Union Code of Practice and the Building Society Code of Practice were first launched. Other codes have followed, and there are currently eleven industry-developed and administered codes covering banking, general insurance, superannuation, and wealth management.
In addition, there is the ePayments Code, addressing electronic payments issues. The ePayments Code differs from the other financial services codes in that, although a voluntary code, it was developed and is administered by ASIC (ASIC recently commenced a review of the ePayments Code).
Approval of financial services industry codes is currently voluntary. Until last year, no codes had been approved under the RG183 regime — largely reflecting the fact that industry groups did not see a net benefit in seeking RG183 approval of their codes. This situation changed, however, with the Australian Banking Association’s application for approval of its 2019 Banking Code of Practice (BCP). After an extended negotiation process, the 2019 BCP, which comes into operation on 1 July this year, was approved by ASIC in July 2018.
Implications for the mutual Banks
The proposed reforms to industry codes’ regulation will have implications for the Customer Owned Banking Code of Practice, a review of which is currently being conducted.
Assuming Commissioner Hayne’s recommendations are legislated, as both the major political parties have promised, the revised Code will need to identify all its enforceable provisions—and subscribers will need to be very cognisant that breach of any of these provisions could prompt ASIC regulatory intervention!
It is also clear that the mutual banking institutions that do not currently subscribe to an applicable industry code will have to do so.