Treasury has released for consultation ASIC Enforcement Review Position and Consultation Paper 4 on Industry Codes in the Financial Sector.

Codes of Practice fill a regulatory gap and give practical guidance to industry practices.

The paper addresses two key issues:

• Currently not all participants in relevant industry subsectors are code subscribers.
• Codes are not currently required to be approved by ASIC and therefore are not subject to a requirement to contain a minimum set of consumer protections or minimum standards on enforceability.

Currently there are 11 codes in the financial services industry with one having received ASIC approval (see list below).

The paper concludes that there should ideally be a single approved code covering an activity, rather than a proliferation of alternative codes depending on the nature of the provider.

The Taskforce anticipates that the kind of activity that would ultimately be covered by the approved code requirement would include retail banking, retail life insurance, the provision of insurance and associated services through superannuation or other group arrangements, retail general insurance, insurance brokerage, and the provision of ePayments services (noting that special considerations may apply to the ePayments code, as it is administered by ASIC ).

Under a proposed co-regulatory model, industry participants would be required to subscribe to an ASIC approved code, and in the event of non-compliance with the code an individual customer would be entitled to seek appropriate redress through the participant’s internal and external dispute resolution arrangements.

The Taskforce’s positions as outlined in the paper are:

• Position 1: The content of and governance arrangements for relevant codes (those that cover activities specified by ASIC as requiring code coverage) should be subject to approval by ASIC.
• Position 2: Entities engaging in activities covered by an approved code should be required to subscribe to that code (by a condition on their AFSL or some similar mechanism).
• Position 3: Approved codes should be binding on and enforceable against subscribers by contractual arrangements with a code monitoring body.
• Position 4: An individual customer should be able to seek appropriate redress through the subscriber’s internal and external dispute resolution arrangements for non-compliance with an applicable approved code.
• Position 5: The code monitoring body, comprising a mix of industry, consumer and expert members, should monitor the adequacy of the code and industry compliance with it over time, and periodically report to ASIC on these matters.

The proposed model does not preclude the adoption of other, voluntary codes in other parts of the financial sector (for example, in relation to dealings with wholesale customers or in relation to activities not specified by ASIC).

ASIC approval would be subject to the following requirements:
1. Each code would set out base level (rather than ‘best practice’) service standards that a consumer or small business customer can expect in dealings with the subscriber. It should not repeat or paraphrase existing legal obligations. It should be drafted in plain language, and be brief.
2. Codes should be formulated by an incorporated code body, the board of which includes an appropriate mix of industry representatives, consumer representatives and independent experts.
3. Codes should contain robust enforcement provisions including:
3.1. Subscribers should be contractually bound to comply with the code, by an agreement with the code body. Where ASIC considers it appropriate, there could also be a requirement that the provisions of the code be incorporated into agreements with customers.
3.2. Codes should expressly provide that a subscriber’s failure to comply with the code is to be taken into account in resolving disputes with individual customers through the subscriber’s IDR and by AFCA, on the basis that compliance with the code by subscribers is expected (rather than optional or aspirational).
3.3. Each subscriber would be required to monitor its ongoing compliance with the code and report periodically to the code body. If, based on that report or following notification (for example by ASIC, AFCA or a relevant consumer or industry body) of concerns about a subscriber’s code compliance record, the code body considers that there is systemic non-compliance, the code body could require the subscriber to take steps to improve its compliance practices. The code body could also escalate concerns to ASIC for further investigation (for example, of whether the non-compliance is evidence of a failure by the subscriber to meet the requirements of CA s 912A).
3.4. The code body should keep the code content under review on an ongoing basis and adapt it to changing market conditions.

Currently there are 11 codes in the financial services industry:
1. Code of Banking Practice, an initiative of the Australian Bankers’ Association;
2. Customer Owned Banking Code of Practice (developed by Abacus, now the Customer Owned Banking Association);
3. Financial Planning Association of Australia’s Code of Professional Practice;
4. General Insurance Code of Practice;
5. ePayments Code;
6. National Insurance Brokers Association’s Insurance Brokers Code of Practice;
7. Mortgage & Finance Association of Australia’s Code of Practice;
8. Finance Brokers Association of Australia’s Code of Conduct;
9. Australian Collectors and Debt Buyers Association Code of Practice;
10. Financial Services Council’s Life Insurance Code of Practice; and
11. Financial Planning Association Professional Ongoing Fees Code (ASIC approved).