What you need to know
- The Commissioner has recommended that terms of industry codes which govern the consumer contract be enforceable.
- Breach of those provisions would be a breach of the law – with consequences such as pecuniary penalties and damages.
- There will be a process in which industry bodies nominate which code provisions are "enforceable" – but ASIC will need to approve that choice and may be able to impose its own selections.
Commissioner Hayne's final report recognises the value in industry codes in harnessing the views of industry participants and giving them a way to agree to exceed legal requirements. But the report considers the effectiveness of industry codes has been limited, raising questions as to the adequacy of monitoring and enforcement, and limited consequences for breach.
Consistent with the more general theme of accountability, the Commissioner's final report recommends giving codes (and ASIC) more teeth by having "enforceable code provisions" – breach of which would be a breach of the law.
What will be "enforceable code provisions"?
Not every single part of a code of conduct will be law – only the designated "enforceable code provisions".
The enforceable code provisions are to be those which govern the terms of the contract with the consumer. Examples (if they are part of the relevant code) would be obligations to:
- engage with customers in a fair, reasonable and ethical manner; and
- exercise reasonable care and skill.
ASIC to approve codes and the designation of enforceable provisions
The Commissioner recommends an active role for ASIC in approving codes as well as in the selection of enforceable code provisions.
The first step would be for the industry body to provide ASIC with its proposed code, with proposed enforceable code provisions identified.
It will then be up to ASIC to approve the code – or not. In particular, in determining whether to approve the code, ASIC will look at whether the industry body has identified all provisions that should be made enforceable, and whether they are expressed clearly and unambiguously so as to be capable of enforcement by courts. ASIC will also be expected to actively engage with industry bodies to develop increasing accountability in regard to codes.
Where a code already exists and has been approved by ASIC (such as the 2019 Banking Code), the industry body will be required to identify the provisions to be enforceable. If a code does not exist, ASIC would be able to impose a mandatory industry code – in effect by selecting the enforceable provisions itself.
To facilitate this more broadly, ASIC's powers in relation to approving codes of conduct (which are currently limited to financial services licensees, authorised representatives and issuers of financial products) will be extended to all APRA regulated institutions and credit license holders.
Penalties and damages for breach
The Commissioner recommends consequences for breach to be modelled on Part VI of the Competition and Consumer Act. In particular, it seems likely to include pecuniary penalties which could be the greater of (a) a monetary amount, (b) a multiple of the benefit obtained, and (c) a percentage of the company's turnover.
An action for damages would also be available. This would be in addition to the internal and external dispute resolution processes provided for in a code, although consumers would need to elect between the code's external dispute resolution process and a court action for damages. The customer could use the internal dispute resolution process provided before electing between either the external dispute resolution process or a court action for damages.
Author: Ian Bolster, Partner
