Can codes work if they are unenforceable?
As the Financial Planning Association (FPA) and the Association of Financial Advisers (AFA) consider the costs and implications of becoming “code-monitoring bodies” the Federal Treasury has argued the case for greater regulatory oversight to ensure enforceability of such codes.
In a submission responding to the most recent hearings of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, the Treasury has canvassed reforming the framework of industry codes and giving the Australian Securities and Investments Commission (ASIC) a more powerful role.
The Treasury submission was developed in the context of industry codes of practice covering lending but is consistent with the recommendations of the ASIC Enforcement Review Taskforce, which extended to the financial planning industry.
The Financial Adviser Standards and Ethics Authority (FASEA) has subsequently developed a draft code to be monitored by approved bodies such as the FPA or AFA but which will ultimately be overseen by ASIC – something the Treasury suggests may be necessary in other areas of financial services.
The Government department pointed to some of the shortcomings of an industry self-regulatory approach based on codes of conduct as being the existence of multiple codes, the tendency for forum shopping and the lack of enforceability.
“This drawback of self-regulation could be used as an argument for standards to be set in legislation which covers all lenders,” it said. “An alternative approach would be to reform the framework for industry codes to deliver higher-quality outcomes, with a more powerful role for ASIC in promoting higher standards, greater coverage and enforceability.”
Elsewhere in its submission, the Treasury noted that “the adequacy of forms of industry self-regulation, including industry codes of conduct” was being examined by the Royal Commission.
It said the Government had also indicated that it would defer implementation of these recommendations to enable it to take account of any findings arising out of the Royal Commission.
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