When a financial services provider considers its obligations to its customers it is essential that you start with your contract, often set out in your product terms and conditions and supplemented by the relevant Code of Practice.
In Australian Securities and Investments Commission v Dover Financial Advisers Pty Ltd  FCA 1932 Justice O’Bryan of the Federal Court observed that:
“18 A person who provides financial advice to a client incurs legal obligations under the general laws of contract and negligence, as well as specific statutory requirements in the Corporations Act. The legal obligations imposed under contract depend upon the terms of the contract agreed between the adviser and the client. In general terms, and subject to exclusions contained within a contract, the law of negligence imposes an obligation on a financial adviser to exercise reasonable care in the provision of advice. Of most relevance for present purposes, though, are the specific obligations imposed under the Corporations Act.”
In ASIC v Dover the contract was of critical importance as the case was concerned with whether the provision to Dover’s clients of its Client Protection Policy in conjunction with statements of advice was misleading and deceptive conduct by Dover that contravened section 1041H of the Corporations Act and sections 12DA(1) and 12DB(1)(i) of the ASIC Act. Background.
The unfair contract terms provisions of the ASIC Act and the unjust contract provisions of the National Credit Code specifically focus on contract terms.
The Corporations Act and the National Credit Act and Code prescribe things that you cannot include in a contract as well as requirements that you must include. There are also principles that you must comply with when developing a contract.
The Product Design and Distribution Obligations will also affect financial services and credit contracts.
Designing and developing a contract is as important as its correct administration and termination.
Your compliance framework needs to ensure that your products are marketed consistently with their terms and conditions and how complaints and breaches are managed.
In the Financial Services Royal Commission Final Report, the Commissioner observed that “Mr Matthew Comyn, CEO of CBA, accepted that charging fees for no service reflected not only an unacceptable culture and lack of professional conduct among CBA’s advisers, but an unacceptable culture on the part of managers”.
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Author: David Jacobson
Principal, Bright Corporate Law
About David Jacobson
The information contained in this article is not legal advice. It is not to be relied upon as a full statement of the law. You should seek professional advice for your specific needs and circumstances before acting or relying on any of the content.