The UK Financial Services Authority’s "Treating Customers Fairly" initiative and its potential for application in the Australian financial services industry

27 Feb 2007

The United Kingdom Financial Services Authority has recently introduced the "Treating Customers Fairly" initiative. This requires senior level management of regulated financial services firms big and small to implement strategies to ensure the principle of fair customer treatment is present in their operations. The initiative is still in the embryonic stages and it remains to be seen what the level of firm compliance will be and whether fairness strategies adopted by firms will result in fewer instances of financial product mis-selling which was its main impetus. Certain aspects of fair customer treatment at the financial product design, marketing and complaints handling stages have already been identified by the UK regulator as indicative of the presence of fair customer treatment.

Financial services licensees in Australia must conduct their operations efficiently, honestly and fairly. The Australian Securities and Investments Commission has indicated that this requirement colours all licensee obligations under the Corporations Act 2001 (Cth), including obligations to ensure firms are sufficiently resourced, staffed with adequately trained personnel, have in place fair internal and external dispute resolution systems and compensation arrangements, and ensure their authorised representatives are adequately trained. Industry codes of practice and conduct also mandate the fair treatment of customers, imposing both general fairness obligations as well as mandating specific obligations which are consistent with fair treatment. Further statutory obligations mandate the giving of disclosure statements and having a reasonable basis for the giving of personal advice. Provisions also exist prohibiting misleading and deceptive conduct and unconscionability.

Despite a plethora of regulation in Australia mandating that financial services customers be treated in ways compatible with popularly held precepts of fairness, external dispute resolution bodies still make adverse findings against licensees and customers are still exposed to economic loss in cases of mis-selling. Whilst the United Kingdom’s Treating Customers Fairly initiative has thus far provided food for thought on some manifestations of fair customer treatment so far untouched by the regulator in Australia, evidence does not yet exist to suggest that the introduction of such an initiative in this country would ameliorate current consumer issues in the financial services industry. The main reason for this is that many of these issues appear to stem from a lack of compliance with existing laws. Compliance issues do however beg the question of whether a principle based approach could reduce the incidence of non-compliance by enabling firms to tailor their own consumer protection initiatives to their business strategies. More research is required into this question.

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