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CHAPTER 5: CODES OF CONDUCT IN THE FINANCIAL SERVICES INDUSTRY

5.1 KEY POINTS

5.2 ROLE OF INDUSTRY-BASED CODES OF CONDUCT

The Government is committed to supporting and fostering industry-based codes of conduct developed between industry and consumer groups and designed to guarantee the delivery of quality services to consumers.
The Government is keen for industry to take ownership and responsibility for developing effective and efficient self-regulation. It sees this as part of its overall strategy to reduce the regulatory burden for business, particularly small business.

Existing codes of conduct

There are various existing codes of conduct in the financial sector. They range in content from general statements of principle about how the financial services industry operates, to listing specific industry practices which are guaranteed by the code. Existing codes either contain minimum standards or standards which are aimed at best practice. They also differ in other respects, including whether or not they provide a method of dispute resolution or any sanctions for non-compliance with the code.
Some of the existing codes are:

Code of Practice for Advising, Selling and Complaints Handling in the Life Insurance Industry

The Code applies to all life companies and life brokers, and their life insurance advisers. It deals with:
Life companies and life brokers are required to provide regular reports to ASIC about compliance with the Code. Breaches of the Code are to be referred to the life company’s Board or Code Compliance Committee, or to the life broker’s directors or principals.

General Insurance Code of Practice

Under the Insurance Act 1973 the General Insurance Code is mandated for those carrying out certain types of prescribed insurance business.
The Code includes standards of practice for general insurers in relation to:
A separate company, the Insurance Enquiries and Complaints Limited, monitors compliance, receives complaints about breaches of the Code and can impose sanctions such as rectification, audit, corrective advertising and publication in its annual report.

Code of Banking Practice

The Code includes provisions which:
Banks are bound to the Code when they announce that they adopt the Code and must refer to it in any terms and conditions. The Code was not fully in operation until late 1996, with the commencement of the Uniform Consumer Credit Code. Monitoring of compliance with the Code was previously undertaken by the Australian Payments System Council and since 1 July 1998 is undertaken by ASIC.

General Insurance Brokers Code of Practice

The Code describes standards of good practice and the level of service expected from insurance brokers. The Code is part of a national self-regulatory scheme. The scheme also includes the Insurance Brokers Dispute Facility (IBDF). All insurance brokers subject to the scheme are bound by the terms of both the Code and IBDF. The Code applies to general insurance matters only.
The Code sets out the responsibilities of participating insurance brokers and also requires them to establish an internal process for resolving disputes.
Any breach of the Code by an insurance broker may give rise to binding orders or sanctions being imposed on the insurance broker. However, a breach of the Code does not give rise to any legal right or liability. The Code is monitored by the Insurance Brokers Compliance Council. Its members represent consumers, the Government and insurance brokers.

Financial Planning Code of Ethics and Professional Conduct

The Code sets out general standards such as integrity, competence and objectivity. It also has specific rules on matters such as disclosure statements to prospective clients and the preparation and explanation of a financial plan.

5.3 ROLE OF CODES IN THE NEW REGIME

The Government sees both new and existing codes of conduct as having a major role to play in the new regulatory framework for the financial services industry.
It encourages different industry sectors to develop new codes or modify their existing codes in light of the proposed financial services regulation and the Government ’s policy of seeking to maximise the comparability of financial products for consumers.
The Government proposes that codes of conduct should establish best practice standards for the financial services industry. A code should have as its basis the Law and provide clarification and processes and procedures for meeting the requirements of the Law. Codes may also be developed that establish best practice in areas not covered by the Law, but where industry and consumers consider the adoption by industry participants of consistent procedures and standards will facilitate business and enhance services offered to consumers. [72]
It is expected that new and revised codes would be developed by industry in consultation with ASIC and with consumer associations.
Industry may seek ASIC approval of a code, and ASIC will have power to approve a code as being consistent with the financial services law and representing best practice for an industry sector. [73] Such a code would largely be regulated by the industry. However, it would not be mandatory for an industry participant to be a party to a code nor would codes be required to be approved by ASIC.
In exercising its powers, ASIC will be required to take account of the benefit of having codes of conduct harmonised to the greatest extent possible to reflect the regulation of the financial services industry. At the same time, however, where codes govern activities not covered by the regulatory framework, or where codes provide detail about how to meet regulatory requirements the different characteristics of particular financial products or activities should be recognised.
Codes which are currently enforced by the industry can continue to be enforced in that way.
The objective of the Government ’s approach to codes is to provide flexibility to industry participants and foster an environment whereby industry works co-operatively with the regulator and consumer associations to establish best practice.

[72]. See Codes of Conduct Policy Framework released by the Government in March 1998. This framework seeks to provide guidance to business and consumers about the development of codes of conduct generally.
[73]. ACCC may also play a role in relation to questions of competitive behaviour.