Enforceability of Financial Services Industry Codes
The submission to The Treasury in relation to the Consultation Paper entitled Enforceability of Financial Services Industry Codes was prepared by the Australian Consumer Law Committee (ACL Committee) of the Legal Practice Section of the Law Council of Australia.
The recent Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (Royal Commission) revealed significant instances of misconduct, much of which occurred despite the fact that there were relevant codes of practice in place in relation to those entities. It is therefore timely to revisit the design of codes of practice to ensure that the learnings of the Royal Commission are acted upon.
A code of practice is a useful mechanism for providing industry and consumers with a set of accepted standards which will be abided. However, it is important in setting a code of practice that the code of practice has enforceability, accountability and transparency.
There has been much discussion in relation to the life insurance code of practice and the voluntary superannuation code of practice which have been introduced in the last few years. Whilst the introduction of a code of practice was a step forward in life insurance, there was some concern from the consumer movement about the first iteration of the life code, and the voluntary superannuation code.
If the industry, in signing up to a code, is agreeing to be bound to a set of standards, then it follows that the industry should also accept that a failure to abide those standards should result in sanctions for not meeting those standards. If there were no consequences for failures to meet the agreed standard set out in the code, then there would be little incentive for industry to meet those standards. Accordingly, without appropriate sanctions and real consequences there is a risk of undermining the effect of the code.
There is also an existing issue in relation to life and general insurance whereby a reinsurer is not covered by the code, but the primary insurer is. It is the view of the ACL Committee that if a re-insurer wishes to participate by re-insuring a particular line of insurance, it must be a signatory to the relevant code to ensure consistency and compliance and to prevent any gaps in regulation.
You can read the full submission below.