Hayne on licensee general conduct obligations

Much was said by Counsel assisting the Financial Services Royal Commission about whether particular conduct breached a licensee’s duty to act “efficiently, honestly and fairly” and whether a further breach occurred as a result of the licensee’s failure to report that breach to ASIC.

Commissioner Hayne has helpfully analysed the general conduct obligations in the context of his six norms of conduct: obey the law; do not mislead or deceive; act fairly; provide services that are fit for purpose; deliver services with reasonable care and skill; and when acting for another, act in the best interests of that other.

He said:

“The general obligations of Australian financial services licence (AFSL) holders, stated in section 912A of the Corporations Act, and the general obligations of Australian Credit Licence (ACL) holders, stated in section 47 of the NCCP Act, stand out.
First, both provisions impose an overarching obligation to ‘do all things necessary to ensure’ that the financial services or credit activities authorised by the licence are provided ‘efficiently, honestly and fairly’. Understood properly, this requirement would embrace all six norms.
Second, both provisions oblige licence holders to comply with, in the case of AFSL holders, the financial services laws and, in the case of ACL holders, the credit legislation. That is, licence holders must obey the law.
Third, both provisions oblige licence holders to maintain their own competence to provide the licenced services and to ensure that their representatives are both adequately trained and competent to provide those services. That is, they are required to have the capacity to deliver services with reasonable care and skill.
As the law now stands, breach of these general obligations carries no penalty. They are licence conditions enforceable only indirectly, by threatening withdrawal of the licence.”

In the Final Report Commissioner Hayne gives specific examples of conduct which might also constitute a contravention of section 912A of the Corporations Act or section 47 of the NCCP Act including failing to charge the correct rate or fee. Regardless of whether failing to charge the right rate and right fee is a breach of section 912A or section 47, he observed that it is, on its face, a breach of contract.

Recommendations
He recommended that:

  • Compliance with the ABA’s reference checking and information-sharing protocol (or, at least, requirements in the nature of those contained in the protocol) should be mandatory for all AFSL holders whose licence authorises the provision of financial advice. Consideration could be given to making a breach of the protocol (or equivalent obligations) equivalent to a breach of financial services laws for the purposes of section 912A of the Corporations Act.
  • carve-outs for insurance from section 912A be removed;
  • sub-sections 912A(1)(g) and (2) should impose conduct-related obligations on AFSL holders when providing or using IDR and EDR systems. : “I recommend that section 912A be amended to require that AFSL holders take reasonable steps to co-operate with AFCA in its resolution of particular disputes including, in particular, by making available to AFCA all relevant documents and records relating to the issues in dispute.”

I expect that ASIC will look closely at remedies for breaches of section 912A in cases such as ASIC v Westpac Securities.

Related post: Acting efficiently honestly and fairly

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