Sydney Law Review
This paper argues that risks to the consumer have not been sufficiently articulated in the conversations around the massive changes to the regulation of financial services in Australia. The regulatory changes have been designed to foster an internationally competitive and efficient market for financial services and within this, create a system that is neutral as between regulation of products and in which consumer protection strategies are part and parcel of economic efficiency. This lack of a vocal conversation about risks to the ‘retail client’ sits aside a greater exposure of consumers to market performance risks. If regulation is about collective goals and a moral community, if what is an acceptable risk is a political and moral question, then the conversations in the regulatory system should involve more than technical discussions about the cost, length or even utility of disclosure documentation and other compliance obligations. There should be talk about more than regulatory risk. This paper outlines the various consumer protection strategies for ‘retail clients’ for financial services and locates this in a discussion of both risk and compliance. It suggests that the necessary emphasis on compliance by providers may have obscured the need for conversing about risk to clients. It asks that we should ask what values are in place in financial services regulation.
It is a privilege to write this article in honour of David Harland. He was a good friend and mentor.
Australian financial services reform has been ambitious in its attempts to achieve an efficient market through regulatory neutrality for different products. It has adopted somewhat conventional means to achieve this in its requirements for extensive disclosure concerning the provider, the product, the nature of the advice and matters such as fees and potential conflicts of interest; conduct standards to achieve fair behaviour; and licensing obligations for financial service providers that include provision for dispute resolution and arrangements for compensation if required. The regulatory structure has been somewhat innovative in separating prudential from market regulation. This paper outlines and describes these requirements.
Throughout the period of introducing these changes in regulation there has been a vocal conversation about the desirability and necessity for compliance with these obligations, which for some sectors in the financial services industry have been quite different from the previous product based requirements. Compliance has been portrayed as a panacea for success in the industry, regulatory effectiveness and, most interestingly, consumer protection in that the regulatory requirements may limit the ability of providers to take advantage of consumers. Compliance has also been criticised as costly, and ineffective in so far as consumers are unable to comprehend and make use of the elaborate information disclosed to them.
The arguable over-elaboration of compliance requirements seems to reflect the fact that economic risk has been shifted from the providers of financial products to consumers, as in the case of the move from defined benefit to accumulation superannuation funds. The compliance burden for providers appears to have increased as their economic risk has decreased. What may be perceived as compliance ‘overkill’ may encourage best practice for providers, although much of the disclosure required of them may go ‘over-the-head’ of the consumers to whom the information is given.
These changes to regulation have taken place at a time when Australians have been exposed to the ‘market’ as never before. It is striking that there is little talk about risk in the new world of financial services, where consumer savings and retirement incomes are subject to market performance risk with its upside and downside. Yet risk is not just a question of the probability of an outcome. What is perceived as a risk is socially constructed. Regulation also reflects the collective goals of the community.
The absence of a conversation on risk is intriguing. The regulatory strategies have a certain consumer protection utility. Yet they are not portrayed as designed to guard against any specific risk. For instance, it is not said loudly that licensing is to guard against the risk of a consumer dealing with an unqualified person, nor that disclosure of some matters is to guard against choosing the wrong product, nor that regulating the conduct of those dealing with consumers is to prevent bad faith in dealing.
The focus on compliance appears to have ousted the possibility of talk about risk. There is meaning in the lack of a risk conversation. This paper suggests that by failing to clearly articulate questions of financial services risks to the individual consumer, the community has assumed that there is adequate protection from prudential, systemic and regulatory risk and has constituted market performance risk in particular as an acceptable danger.
|2.||Risk and Regulation|
Risk is fashionable — the ‘new black’ — and has many meanings. In his influential book, the German theorist Ulrich Beck discusses the role of science in creating the risk society, a society distinguished by the distribution of ‘bads’ or dangers as opposed to earlier industrial society distinguished by the distribution of goods. In her collection of essays Risk and Blame, the anthropologist Mary Douglas argues that risk now has a new meaning. In the nineteenth century it was associated with probability and the importance of risk-taking to industrial expansion. Douglas argues that it is now associated with danger, and politicised, is used to protect individuals against the encroachments of others. Risk now plays a role akin to sin and taboo. A person ‘at risk’, is a person sinned against. The function of sin and taboo was to protect the community. The modern notion of risk, says Douglas, is to protect the individual.
Douglas argues that since the culture of a social system is about persons holding one another mutually accountable, there is a relationship between power and risk, as different opinions about risks are reflected in contests over power. Since the analysis of risk involves both the probability of an event occurring and the probable importance of the outcome of that event, the ultimate assessment of the risk will depend on the value accorded to a probable outcome. This evaluation, says Douglas, is political and therefore contestable. Since risk is unacceptable danger, what is acceptable risk is a political question. Douglas says also that the evaluation of a probable outcome in calculating risk can be moral. In commenting on Beck, she says that his insight is that the old moral questions about the allocation of wealth have been transformed into questions about the allocation of risks. Beck was concerned with risks inherent in science and the environment, but his insight is applicable to questions of individuals’ engagement with financial markets.
Collectively, we are asking the question of what is an acceptable risk to the financial system? We are barely asking the question of what is an acceptable risk for each individual who contributes to that system. We focus on compliance with rules and the new literacy: financial literacy. Douglas suggests that more education of the public is not an answer to the question of risk, for in a democracy ‘education is not expected to change political commitments’ and as the value placed on risk is political (or moral and aesthetic), and results in different opinions about risk, education in itself cannot be expected to resolve the problem posed by risk as danger.
Douglas says that each human culture uses danger as a bargaining weapon and that different cultures choose different dangers (or risks) as a method to self-maintain that culture. We have chosen (but only implicitly and not explicitly) to characterise any financial risk to individuals through the ready availability of credit and the exposure of retirement savings to the market as an acceptable danger. We have justified this as important for the competitiveness, effectiveness and efficiency of Australian markets, and implicitly accepted that there should be protection from any risks or dangers to the overall financial market through prudential regulation and the management of information. We have chosen to limit the conversation about dangers or risks to individual participants in the market for financial services and chosen to focus instead on whether institutional market participants comply with their obligations, again looking to the safety of the Australian financial market overall. It is in this sense that the regulation of financial service providers may be seen merely as the counterpoint to the dominant theme of the last two decades, which is that individuals, rather than the providers, have been selected to maintain the stability of our financial culture.
There is another complementary story of risk. This suggests there is a distinction between risk and danger since danger is the possibility of loss arising from factors over which we have no control or influence, while risk is the result of loss arising from decision making. Danger is reconstructed as risk through decision making. We live in social systems of decision making and in the financial markets dangers such as weather are transformed into risk, for example weather-based derivatives. Financial activity and markets are characterised by the way in which they are able to transform dangers into risk particularly by the use of technology and organisational structures which allow for more activities to be reconfigured as part of the decision-making process. The more actions which require a decision, the more the individual is exposed to risk rather than danger. Risk is an element of entrepreneurship, yet the individual consumer of financial services is an unlikely entrepreneur.
We are witnessing the convergence of the investor with the consumer. It is argued that in contrast with such archetypal figures as the manufacturer and entrepreneur, the investor is missing from the portrayal of the story of capitalism. This investor, who has transited through history and such different views of investment as the death penalty for financial speculation, to investment as a socially useful expression of human freedom that can overcome inequality and to which all have a right, is said to personify the legitimacy of financial markets. In Australian financial services law, the small investor has been subsumed into the notion of the ‘retail client’ and the ‘consumer’ — overlapping yet distinct legal concepts. The participation of both is central to financial services markets and overall economic prosperity. Both are protected yet exposed.
Yeung argues that regulation is the sustained and focused attempt by the state to alter behaviour thought to be of value to the community. Thus the purpose of regulation and those designing regulatory systems and providing legislation is to implement particular collective goals to promote what is regarded as best for the community. This approach looks to the public interest and the values inherent in a regulatory system. For Yeung, these are the constitutional values inherent in the rule of law and liberal democracy.
There is another approach to regulation which emphasises the management of risk in society. Utilising the science of probability, financial markets developed sophisticated risk management systems, which produce unforeseen second-order dangers. Risk management which was initially concerned with monitoring trading and lending activities was adopted as a technique for corporate governance and internal control which is now thought of as ‘risk culture’. Risk management moved from the corporation to government and, as enterprise risk management, has informed legislation and regulation so that it is now possible to talk of risk-based regulation. This is the approach of financial services regulatory agencies in the UK, US, Canada and Australia. It has been suggested that the new risk-based regulation means that public policy issues become a matter of risk management and agencies are keener to manage their own reputational and political risk in preference to their systemic obligations; politicians and regulators may be able to shift responsibility to external standards or objective models and blame others for financial failures; and the reference to risk management techniques is symbolically useful to regulators who can portray themselves as addressing risk. The question of what is an acceptable risk remains essentially political, for ‘from whose point of view should one view risk, cost and benefit?’ Or, to rephrase Power, how much risk should be ‘handed back’?
The overriding collective goal being pursued in Australian financial services regulation is the prosperity of the Australian community through a competitive and efficient financial services market. This is evident from an analysis of the reports and responses which generated the Financial Services Reform (FSR) which resulted in widespread legislative changes. The starting point of the Wallis Committee philosophy of regulation was that ‘free and competitive markets can produce an efficient allocation of resources and provide a strong foundation for economic growth and development’.
The recommendations of the Wallis Report self-consciously sought to ‘facilitate the international competitiveness of the Australian financial system’. In response, the Treasurer articulated the goals of reform as transforming the performance of the financial sector from world average by creating a world class regulatory structure for the development and growth of the whole Australian economy. The Treasurer explicitly linked the recommendations to reform the financial system with the Corporate Law Economic Reform Program (CLERP). The CLERP 6 paper — Financial Markets and Investment Products — Promoting Competition, Financial Innovation and Investment — analysed the purpose of regulation and pronounced that efficient and credible markets would attract investment and further the policy objectives of growth and employment. With the assistance of a regulatory regime which encouraged innovation and competition, Australia could develop as a major financial centre. Such a regulatory regime could help mobilise savings and investment in new financial products and markets. The approach outlined is that markets should be free and that regulatory intervention was justified to correct market failure but that regulation cannot guarantee success in the market. For consumers, unsophisticated investors and acquirers of other financial services, this is the nub.
The inability to regulate for performance or market risk is a singular characteristic of financial services markets. This distinguishes financial services products from the market for goods and many other services where performance of the product is highly regulated. To some extent this relates to the nature of financial products. Long-term packaged investment products have been described as opaque, lacking transparency and incapable of being understood or evaluated by buyers while advice about them has been described as being impossible to evaluate. It also relates to the imperatives of market efficiency. The Wallis Report drew a distinction between the risk allocation function served by the then economy-wide provisions of the Trade Practices Act 1974 (Cth) and the function of risk in investment decisions:
Unlike the consumption of products or services in general, many investments provide a return to investors based on their bearing a share of the risks which are intrinsic to financial activity. This clearly distinguishes the act of investment from the act of consumption. Among the risks that investors may be rewarded for bearing are those deriving from imperfect information. It is vital to economic efficiency that regulation not unduly interfere with this risk allocation function of the financial system. In the areas of the law which have provided specific due diligence defences, explicit balances have been struck between consumer protection and market efficiency objectives, and these should not be interfered with by other laws.
What is interesting in this statement is the creation of a dichotomy between consumption and investment. It sets up a distinction between the role of risk in consumption and investment, including the relationship between risk and gain. The statement implies that there should be differing rights to protective measures to mitigate risk depending on whether an activity is investment or consumption. The suggestion here is that an investor should accept risk because of the opportunity for gain. Leaving aside any niceties in a distinction between investment and consumption, it is fair to say that not all financial services activity relates to investment. Indeed, the Australian legal concept of financial services is very broad. There can be very big risks attached to mere consumption and this has not prevented the development of an enormous body of regulation calculated at reducing those risks for individuals, for example product liability legislation. In Australia, consumers are asked to assume comparatively little risk with respect to goods. The protection against risk to ‘retail clients’ of financial services has improved in some respects and diminished in others. The question of what is acceptable risk remains insufficiently explored.
As in Australia, neither the United Kingdom (UK) regulator — the Financial Services Authority — nor the United States (US) regulator — the Securities and Exchange Commission — protect against performance risk.
|3.||Market Risk and the Consumer|
In the last decades the Australian economy has undergone a radical transformation. From a highly protected economy, dependent on rural production, mining and small scale manufacturing, it is now open to global competition. These changes are particularly evident in the financial services sector. At the beginning of the second half of the twentieth century banks dominated, but were highly regulated. There was greater flexibility for other institutions such as building societies, credit unions, life insurance offices and superannuation funds. Few individual Australians were direct investors in shares. Until the hyper-inflation of the 1970s, ordinary working Australians could expect full employment, home ownership, modest savings, easy insurance, generous superannuation if employed in the public sector, and generous non-contributory state funded old age pensions. Ordinary Australians had little exposure to market risk.
Since the 1980s, through successive changes in government policy, the Australian financial services sector has been progressively opened to competition through foreign entrants and diversification into new financial services by existing financial institutions. Some of the key factors have been the entry of foreign banks, the floating of the Australian dollar, the removal of exchange controls, and changes to payments systems. The implementation of a National Competition Policy has driven legislative review and reform. In more product-specific areas some changes have included the introduction of award and compulsory superannuation so that in a decade and a half superannuation coverage increased from around 40 per cent to 90 per cent of employees; the introduction of dividend imputation; granting of taxation concessions for US fund managers; large scale demutualisation and privatisation of enterprises resulting in widespread individual share ownership. Associated with these changes has been a restructuring of the distribution networks for financial services so that there is far more extensive use of financial planners and mortgage brokers. While some of these changes have been driven in part by compulsory savings, other are linked to government macro-economic policy to grow the economy through easy availability of credit.
These changes have meant that consumers have greater exposure to risk. They may make gains but they can borrow too much; small mortgagees can find their security worthless; the institutions with which consumers deal can fail, as with the high profile collapse of an insurance company or superannuation firm; they may find themselves unable to buy insurance; and the value of their superannuation savings may vary according to the market cycle. Similarly, the value of savings in managed funds may vary and consumers may fail to take the cost of entry, exit and commissions (particularly trail commissions) into account. The insurance crisis in Australia following the collapse of HIH Insurance and the introduction of contentious choice of fund legislation to allow superannuants to move their superannuation savings from one fund to another have underscored potential risk.
Australian investors are said to ‘have an appetite for big returns and are ready to increase their levels of risk to satisfy it.’ The Financial Sector Advisory Council reported that superannuation has ‘brought into stark relief that the interests of the vast majority of the population are aligned with market outcomes.’ Yet there is a disjunction between the reported willingness to embrace the market and an understanding of the market and its risks. The need to improve the financial literacy of Australians is widely recognised. The theme of education for the financially less-than-literate, now exposed to market risk when previously less exposed, runs through many contemporary national approaches to regulation.
Australia has not been alone in the greater exposure of consumers to the dangers of market risk. In the UK from the late 1980s to the mid 1990s, individuals were encouraged to move out of occupational pensions into personal pension schemes that gave them fewer entitlements. This pensions misselling scandal has been interpreted as more than outrageous selling, over-exuberant firms, political ideology, product complexity or regulatory ignorance. It has been seen as a profound failure of the UK regulatory structure at the time. Regulators failed to foreshadow and recognise a potential problem and provide regulatory guidance, and firms failed to take regulation and compliance throughout the business seriously. Overall, we have a situation where to achieve economic prosperity it has been necessary to democratise market participation. However, market participation entails the risks of losses or gains and the regulator can neither guarantee the one nor prevent the other.
|4.||The Subsidiary Collective Goals of Regulation|
Certain subsidiary goals can be discerned within the collective goal of economic prosperity founded on an internationally competitive, free and efficient market. Moran has argued that as the struggle for comparative advantage in globalised financial markets has intensified, there are common and national features to the regulation of financial services. Yet the search for comparative advantage also involves seeking the best regulatory system, as suggested by references to the link between regulatory efficiency and economic performance and the Australian Treasurer’s reference to a world class regulatory structure with the highest standards of prudence, safety and consumer protection. Australia has sought to guard against the risk of market and institutional failure and, within the market, while maintaining competition and confidence, to provide a measure of protection for the less sophisticated or vulnerable. This is reflected in the recommendations of the Wallis Report, and the CLERP 6 Proposals concerned with market integrity, safety, stability and minimisation of systemic risk, market conduct, disclosure, information transparency, and investor protection. These twin goals of market integrity with risk minimisation and consumer protection have justified regulatory intervention.
The reform literature linked consumer protection to market integrity. Consumer protection was said to be warranted because of the complexity of financial products, which increased the possibility of consumers misunderstanding or being misled about the nature of the product, the obligations entailed and the risks involved. It was asserted that both consumer protection and market integrity regulation require the same tools of disclosure and conduct rules. Consumer protection was said to require retail consumers to have adequate information, be treated fairly and have adequate avenues for redress. Adequate information was necessary for retail investors to understand risks and make informed decisions. Such information transparency would have the added advantage of creating better pricing and a more efficient market. These arguments reflect classic assumptions about the role of information asymmetry and efficient markets.
An overriding objective of regulatory reform was cost effectiveness and regulatory neutrality. The Wallis recommendations sought regulation of similar products in a consistent way to improve comparability and the introduction of greater competitive neutrality. Competitive neutrality was said to require the regulatory burden to apply in a like way to all particular financial commitments or promises. Such a functional approach to regulation rather than the regulation of specific products should eliminate unnecessary distinctions, be flexible, prevent regulatory arbitrage and result in a more competitive and innovative market. The aim was to dispense with regulation according to product type and introduce uniform regulation according to product function, which would overcome any regulatory overlap.
These proposals were given form in the Corporations Act and in the ASIC Act, which were re-enacted and amended to overcome piecemeal regulation and to provide for licensing, disclosure, conduct and fairness standards. All financial products and services are now regulated at a generic level in Chapter Seven of the Corporations Act. The objective of this Chapter is:
|5.||The Conversation about Regulation — What is In and What is Out?|
In thinking about how a regulatory system works, Black has argued that we should look to who and how various actors are enrolled in the system and to the conversations between actors about the rules of the system and process of rule formation. There are many regulatory conversations in any one system, and it is as important to look at what is omitted from the conversation, as it is to look at what is included.
In Australian financial services regulation there is little discussion of risk to individual consumers. This is surprising given the explicit consumer protection obligations of the Australian Securities and Investments Commission (ASIC), one of the financial service regulators. One of ASIC’s clear objectives is to promote confident and informed participation by consumers in the financial system. It is obliged by law to monitor and promote market integrity and consumer protection in relation to the financial system and the payments system. ASIC’s consumer protection function follows from specific obligations in the Corporations Act and general prohibitions in the ASIC Act.
There is a discussion of risk, but this forms part of the conversation about rules within the payments system and prudential regulation and is about the stability and safety of the system overall. This is a conversation about systemic risk and risk to an enterprise — operational risk, legal risk and prudential risk. The Reserve Bank of Australia (RBA) has two boards: the Reserve Bank Board and the Payments System Board. The creation of a Payments System Board within the RBA was a direct result of the Wallis Report. The Payments System Board determines the RBA’s policy on the payments system to control risk, and promote an efficient and competitive payments system. It is argued that these powers relating to efficiency and competition are unique among central banks and necessarily involve consideration of retail matters, for without consumer confidence there cannot be increasing efficiency. The payment systems operate as self-regulatory systems which may be designated by the RBA as subject to law if this is in the public interest and does not increase risk. The public interest is defined as the system being financially safe for participants, efficient and not contributing to increased risk to the financial system. The Wallis reforms also led to the creation of the Australian Prudential Regulation Authority (APRA), which is responsible for rules to ensure certain financial institutions maintain capital adequacy and manage risks that might undermine financial viability. APRA is explicitly obliged to balance the objectives of financial safety with those of efficiency and competition. In the event of difficulties, APRA’s responsibilities are to deposit holders or policy holders (ie, consumers), but this does not extend to a guarantee.
The lack of a conversation about the risks faced by individual consumers as opposed to the system contrasts with the United Kingdom where the sole regulator, the Financial Services Authority (FSA), looking towards the new millennium, identified four principal risks faced by consumers in ordering their finances. These are prudential risk, bad faith risk, complexity/unsuitability risk, and performance risk. Expanded, these are the possibility that an institution will fail due to management or capital problems; the risk of fraud, misrepresentation, deliberate misselling, failure to disclose relevant information or bad advice; the risk of consumers buying products or advice that they do not understand or which do not suit their needs; and the risk that investments do not provide the hoped-for returns. The FSA sees its role as being to reduce prudential risk, bad faith risk and aspects of complexity/unsuitability risk, but not performance risk. Its consumer protection function operates within the principle that consumers should take responsibility for their decisions.
In Australia, the predominant discussion has been about the nature of the strategy to protect rather than the purpose of the strategy. This has focused on the strategies of licensing and disclosure, and on methods of ensuring fair conduct. Discussion recently has shifted to strategies for preventing and managing conflicts of interest. This has not been framed as a discussion about risks to the consumer. Instead, the Australian conversation has focused on compliance, that is, compliance of the enterprise with regulatory requirements in order to reduce the risk to both the enterprise and the consumer. Corporate compliance and industry self-regulation are viewed as methods to penetrate the corporate mind-set and develop systems of behaviour and informal rules aligned with legal strategies to protect consumers. Instead of examining risks to the consumer, ASIC aims to identify consumer protection risk, that is, risks to the protection of consumers. This is the function with which ASIC is charged. In this way consumer risk is conceptualised as a risk of regulation, not risk to the consumer.
This is not to say that ASIC has not been mindful of consumers. Indeed, ASIC has a website specifically devoted to consumers and makes extensive information available to consumers. Its priorities in consumer protection and education have developed over time and include recognition of an ageing population. They have included superannuation and retirement planning, independent financial advice, banking fees and charges, and financial literacy and financial exclusion. These topics have not been contextualised in terms of risk to individual consumers.
|6.||The Regulatory Architecture|
The separation of prudential regulation from corporate regulation may be a partial explanation for the absence of a vocal regulatory conversation about the risk to the consumer in Australia. In common with Canada, and in contrast with the UK, Australia has adopted a ‘two agency’ model for regulation which separates the administration of prudential and corporate regulation. The prudential regulator is APRA and the corporate regulator is ASIC. APRA is solely responsible for the prudential regulation of entities which provide services for deposit taking, general insurance, life insurance, and superannuation. ASIC is responsible for market integrity and consumer protection. Compared with APRA which supervises approximately 4,000 entities, ASIC regulates over one million companies. Its areas of regulation include: capital markets, corporate fund raising and mergers and acquisitions; financial markets, products and services including managed investment schemes and financial advisers and dealers; clearing and settlement facility operators and auditors and liquidators. Following financial services reform, ASIC became responsible for the new single licensing regime and the consistent and comparable disclosure regime.
In addition to the agencies, the regulatory architecture includes the key legal concepts which frame the system. These concepts are the foundation for product-neutral regulation. While seemingly clear, the rules are wide in scope and complex. The provisions of both the Corporations Act and the ASIC Act apply to ‘financial products’ and ‘financial services’. The concept of a ‘financial product’ is flexible and designed to overcome specificity. Central are three functions: making a financial investment, managing a financial risk, and making non-cash payments. A person makes a financial investment if he or she gives money to another person to generate a return or benefit and does not have day-to-day control over its use. A person manages financial risk if they manage the financial consequences of particular circumstances happening, or avoid the financial consequences of fluctuations in or in the value of receipts or costs. Paying or causing payments to be made in some way other than using Australian or foreign currency in the form of notes or coins is making a non-cash payment. As credit is specifically excluded from the Corporations Act definition of a financial product, non-cash payments linked to credit, such as credit cards, are not included.
A person provides a ‘financial service’ in one of six circumstances. The most relevant, from a consumer context, are providing advice and dealing in a product. Financial product advice means making a recommendation, or stating an opinion reasonably intended to influence a person in relation to financial products. Advice is categorised as general advice or personal advice, ie, advice where it could be expected the situation of the advisee should have been considered by the adviser. If the advice is not personal advice, it is general advice. Dealing in a financial product includes acquiring, underwriting, or disposing of a financial product, or arranging for a person to engage in this conduct, but not if a person deals on his or her own behalf.
If a person provides a financial service to a ‘retail client’, Chapter Seven of the Corporations Act imposes certain regulatory obligations. As indicated, the concept of the ‘retail client’ does the work of the concept of ‘consumer’ in other contexts. The distinction between a retail client and a wholesale client is central and the default position is that a person is a ‘retail client’. The general definition of a retail client entails certain monetary and other limits.
These general rules do not apply to insurance and superannuation. For insurance, a person is a ‘retail client’ if the insurance product is acquired by an individual person or for a small business and it is general insurance of a stipulated kind. Any superannuation or retirement savings account (RSA) financial product is provided to a person as a ‘retail client’. Other financial services (ie, other than providing a financial product) relating to superannuation or an RSA are provided to a person as a ‘retail client’, unless the person is the trustee of a superannuation fund with assets of at least $10 million, or an RSA provider.
This means that the reach of financial services regulation is wider for superannuation products and consumer insurance products. However, for many financial products, providers may escape what would otherwise be their regulatory obligations if they can persuade the client to confirm that he or she has assets or income above a certain amount.
A further complication is that the definitions which trigger regulatory obligations or exposure to liability for failure to conform to mandated standards of conduct are not consistent between the Corporations Act and the ASIC Act, which are the two pieces of legislation that provide the rules for financial services. The ASIC Act, following the Trade Practices Act which in some respects it echoes, does not use the term ‘retail client’ and instead uses the term ‘consumer’, with monetary and other limits that do not match the Corporations Act definitions.
One of the generic areas regulated quite differently is credit. As indicated, credit is explicitly excluded from the definition of a financial product in Chapter Seven of the Corporations Act. Yet it is explicitly included in the definition of ‘financial product’ in the ASIC Act. There is a separate and distinct regime for consumer credit in the state based Uniform Consumer Credit Code. This results in regulatory inefficiencies such as those with credit cards and also with mortgage brokers.
In addition to the regulatory agencies and legal building blocks, there is a key role for self-regulatory bodies. Academic concerns with compliance and self-regulation have influenced policy formation and regulatory practice. The Wallis Report recommended a model of self- or co-regulation. There were numerous government inquiries into the nature of self-regulation and the form it then took in Australian regulatory life. These were complemented by various speeches by regulators confirming the self-regulatory approach. A co-regulatory structure for conduct standards and dispute resolution is embedded in financial services legislation and administrative process. Consumer dispute resolution is discussed by Paul O’Shea and Charles Rickett in this volume.
|7.||The Regulatory Strategies|
The regulatory strategies adopted in Australian financial services reform to achieve an efficient market which minimises risk and reduces regulatory arbitrage are threefold: licensing (including internal and external dispute resolution and compensation arrangements), disclosure, and methods of ensuring fair conduct including managing conflicts of interest. These are generic obligations and are not specific to any particular sector of the financial services markets. The conversation has been about the nature of the strategy rather than the purpose of the strategy. The reform literature does not articulate with sufficient clarity its assumption that an efficient market is one of the best measures of protection for consumers and that many measures to achieve an efficient market, such as regulatory neutrality and information transparency, have a protective aspect. The strategies are not particularly new but, within the detail, there are new developments.
Kagan distinguishes between ex post control systems of regulation and ex ante regulatory screening of proposed activities. The former rests on detecting prescribed conduct and requires extensive monitoring. The latter requires gaining permission before an activity is undertaken and provides the regulator with the opportunity to impose conditions or standards on the proposed activity. Positive licensing clearly involves screening by the regulator before the activity commences. Mandatory disclosure to prospective clients which can be both screened and later monitored for infringements is conceived of as a powerful regulatory tool, as is the setting of conduct standards. When disclosure obligations and conduct standards are linked to gaining and retaining a licence, the regulator has considerable economic power.
One argument that is sometimes put for licensing is that it can obviate the need for detailed and excessive rules. A further advantage of licensing includes standard setting to guarantee a minimum standard of competence. This can be linked to the imposition of educational and training standards also directed at competence. However, licensing is also a barrier to entry and can inhibit competition. Duggan says that there is a strong case for licensing where there are informational deficiencies which mean that consumers cannot choose effectively, and where the wrong choice can result in a serious risk of loss. Licensing has also been justified as being in the public interest by nudging people away from lawful but undesirable practices. Alternatively, it has been explained as conferring a private interest on existing practitioners and actors. It is argued that licensing is a more effective tool to prevent undesirable conduct than the criminal law, which punishes only after the event, or civil rights of action, which provide compensation only for losses already suffered.
Three forms of licences were introduced as part of financial services reform (FSR): an Australian market licence, an Australian clearing and settlement facility licence and an Australian financial services licence. The Australian financial services licence is the relevant one for regulating who may transact with consumers. It is clearly stated that the purpose of these licences is to promote consumer confidence in using financial services, fair, honest and professional services, and fair, orderly and transparent markets for financial products. Licensing should help reduce the risk to a consumer that a provider will fail, provide fraudulent or bad advice, or unsuitable products, or refuse to resolve legitimate disputes.
Prior to FSR there were multiple licensing regimes for financial services providers. The reform introduced a single licensing regime so that an Australian financial services licence gives the right to provide financial services and imposes consistent disclosure and conduct rules. Old registration regimes, such as those for insurance brokers, were replaced by the new system. Where capital adequacy is critical, certain providers, notably Authorised Deposit Taking Institutions (ADIs), Insurers and Superannuation Funds, must also be licensed by APRA. The Australian financial services licence may apply to some or all financial services but no matter which services are provided, all licensees must abide by the same licence obligations.
There is a range of explicit obligations: acting fairly, complying with licence conditions and the law, and maintaining adequate resources (if not also regulated by APRA), risk management systems and competence. The licensee also has responsibilities to ensure that its representatives are properly trained, competent and comply with the law. Further, the licensee must have an internal dispute resolution mechanism and be a member of an approved external dispute resolution scheme. Finally, the licensee must have a system to manage conflicts of interest.
The crises in corporate governance led to the introduction of the new obligation for financial services licensees to have ‘arrangements’ to manage conflicts of interest. This complements the provision that licensees must ensure that financial services are ‘provided efficiently, honestly and fairly’. The issue arose in the context of analyst independence and the situation in large financial service conglomerates. Following a survey which found that there was a risk that some analysts did not adequately avoid conflict, ASIC concluded that ‘[w]here conflicts exist and cannot be avoided, good regulation demands that they be disclosed and managed effectively. Consumers ... are entitled to trust the integrity of the research and advice which they pay to receive.’ The licence obligation is amplified in an ASIC Policy Statement, which outlines the regulator’s approach to how conflicts can be controlled, avoided and disclosed. It is not enough now just to disclose conflicts. There is a positive obligation to manage conflicts of interest. Conflicts of interest may be actual, apparent or potential and are circumstances where the interests of clients diverge from the interests of the licensee or its representative.
Greater awareness of proscriptive fiduciary obligations has been driven by the corporate governance debates, and most recently in Australia by litigation which raised the possibility of exemplary damages for breach of equitable duties. At a conference held by a firm advising in the financial services area, one speaker said that there is hardly a relationship to which there is not attached a fiduciary obligation. This is true of the responsible entity of a managed investment scheme who is a trustee, the trustees of superannuation funds, insurance agents, and even arguably of financial advisers.
Overall, it is believed that the licensing arrangements work well. Since the introduction of FSR, ASIC has issued numerous licences for various categories. ASIC has taken action against those without licences and those offering services beyond their licence. Yet the ultimate sanction of withdrawal of a licence does little for individual consumers. However, licensees must have client compensation arrangements such as insurance in place for any breach of financial services obligations. This is to guard against the risk of the insolvent licensee.
The argument for mandated disclosure of information by financial service providers is that it redresses information asymmetry and makes for more effective decision-making, and thus for a more efficient market. Investor protection is the public interest goal most usually cited for mandated disclosure. Disclosed information may allow unsophisticated financial services acquirers to avoid substantial losses, protect them against incorrect pricing, and help prevent fraud and misrepresentation. If consumers have sufficient information to make informed decisions about financial products and services, they will make comparisons between services and make better decisions. This will be beneficial to the person and to the market overall. One of the benefits of information is that it creates the ability to make comparisons. Following Schwarz and Wilde, Ogus suggests that it requires only about one third of consumers to engage in comparison shopping which in turn will have an impact on prices.
A further advantage is that disclosure obligations in dealing with consumers can drive changes in systems and cultures within sectors of the financial services industry. Against this are the enormous costs to business in providing and disclosing information, and uncertainty as to whether the mere provision of information does assist consumers to understand and choose. In terms of risks to consumers, disclosure addresses both bad faith, and complexity and suitability, risk.
|10.||Mandatory Disclosure Documents|
The Australian financial services regime has extensive disclosure requirements for ‘retail clients’. Licensees must say who they are, describe their product and, if giving advice based on the advisee’s personal circumstances, further information justifying that advice. The three prime disclosure documents are the Financial Services Guide (FSG), Product Disclosure Statement (PDS) and Statement of Advice (SOA). Parties cannot contract out of these requirements. ASIC has developed Good Disclosure Principles to assist persons to understand the purpose of disclosure, and emphasises that disclosure is to help consumers make better decisions. To this end, disclosure documents are expected to be ‘clear, concise and effective’. The disclosure requirements have resulted in high costs and a massive compliance industry.
The FSG for prospective clients should be given before the transaction is entered into and once it becomes apparent that it is likely that there will be a transaction. It is designed to assist the consumer in deciding whether to deal with the provider. The FSG must provide information about the service provider, the services it is licensed to provide, and how to communicate with the provider. It must also give information about related parties and about commissions and benefits received in connection with the service. The FSG must also contain information about the dispute resolution schemes to which the provider belongs.
The PDS describes the particular financial product and is to help consumers understand the product. The PDS must be given to the retail client when the financial product is recommended, issued or sold. A supplementary PDS may be given to update or correct information. There is also provision for ongoing disclosure of material changes, for example fees. Certain products with an investment component also have a periodic disclosure/reporting regime. This applies to managed investment products, superannuation products, RSA products, investment life insurance products, and deposit products.
The information in a PDS is limited to that actually known by those responsible for providing the PDS, and falls into two broad categories: the obligatory ‘main requirements’ and other information that might be reasonably expected to influence the decision of a reasonable ‘retail client’. The exception to this is that information which would not reasonably be expected to be in the PDS by a ‘retail client’ considering whether to acquire a product is not required.
The ‘main requirements’ include information about: significant benefits that the holder of the product is entitled to; significant risks associated with holding the product; the cost of the product and the costs of holding the product; commissions payable and the impact of this on any return; significant characteristics or features of the product; the rights, terms, conditions and obligations attaching to the product; information complaints and dispute resolution scheme; general taxation implications of the product; any cooling-off provisions; whether the product contains an investment component; and the extent to which labour standards or environmental, social or ethical considerations are taken into account. If no such standards are taken into account this should be clear. If labour standards, or environmental, social or ethical considerations are taken into account, then the PDS must state what those standards are. It is curious that although there is extensive administrative guidance on a number of disclosure issues including labour and environmental standards, there is none specifically on the disclosure of the risks of holding products.
The SOA must be given when the financial service is personal advice. The SOA may be either the advice itself or a record of that advice. As indicated above, advice is a financial service and may be general or personal. Neither the PDS nor the FSG can be financial product advice. Personal advice, which involves the consideration, or reasonable expectation of the consideration of the client’s needs, may only be given if three things are done. The provider must discover the relevant personal circumstances of the retail client and inquire about these. The adviser must also make a reasonable investigation of, and give reasonable consideration to, the subject matter of the advice in light of those circumstances. Appropriate advice must take into account that investigation and subsequent consideration of the matter for advice.
In addition to the advice itself and details about the provider, the SOA must contain information to assist the consumer in deciding whether or not to follow that advice. This information is of two kinds: the basis for the advice and matters that may influence the advice. There must be a statement about the basis for the advice, including details obtained from the retail client. If the information stated to be obtained from the client is incomplete or inaccurate, the SOA must warn the client to consider the appropriateness of the advice before making any decisions. Self-interest may influence the provider in giving the advice. This is guarded against by requiring information that ‘might reasonably be expected to be or have been capable of influencing the providing entity in providing the advice’. This includes information about remuneration or benefits, other interests pecuniary or otherwise, and any relationships between the provider and the issuers of financial products.
If the advice is to replace one product with another there are additional disclosure requirements designed to limit ‘churning’. These include costs associated with disposing of or acquiring the product, and a statement of any benefits the retail client may lose if taking the recommended action. If there will be some charges or loss of benefits, but the adviser does not know or cannot find these out, then the SOA must state that there may be some such charges, losses or consequences but that the providing entity does not know what they are.
As with the PDS, there is a time frame for giving the SOA to ensure that the information is useful in assessing the advice. The general rule is that if the SOA is not of itself the advice, then it must be given when, or as soon as is practicable after, the advice is given. Even if not given at the time, the provider must still supply the information about the matters capable of influencing the provider in giving the advice, such as remuneration. There are some situations where an SOA is not required, such as execution-related telephone advice, or advice about basic deposit products or non-cash payments linked to such products.
Do these disclosure documents benefit consumers in any way? Within the financial services industry there is profound scepticism. This is recognised politically: ‘[t]he end result of FSR has been that the disclosure documents themselves are designed more to manage the liability of the service provider, rather than inform the consumer.’ Some SOAs have been up to 90 pages long! The length and complexity of documents led ASIC to take action. It reminded product issuers that it can issue a stop order on PDSs which are not ‘clear, concise and effective’, and issued a Class order to permit shorter SOAs for ongoing clients which incorporate by reference the information in earlier SOAs.
There were reports that consumers are disadvantaged by the cost of compliance and the complexity of the documents they receive. A planning firm spokesman said ‘[i]t can cost $1,000 to provide a compliant advice structure to a client with a relatively small investment. It would appear ... clients who can’t afford up to $1,000 a year in fees are not getting adequately serviced’. A banker said:
The reforms have most impact on customers of less complex products that have not previously been subject to this level of regulation. The disclosure required can be confusing and confronting to these customers, and can be perceived by them as having no real benefit.
An insurer said ‘our customer feedback indicates that the current format takes simply too long to renew or purchase insurance policies over the phone.’
At issue is the very strategy of disclosure. Commenting on insurance, the Consumers’ Federation of Australia said ‘neither a PDS, nor improved policy wording that is “clear, concise and effective”, will even in concert, adequately address the vexed issue of disclosure.’ In response, the Government proposed refining the disclosure requirements and ASIC issued guidance for more concise documents. Subsequently, amendments were introduced by Regulation to reduce duplication and the length of documents. The refinement is to make information ‘relevant’ to consumers and to ‘reduce the compliance burden’. The extent to which disclosure might protect individual consumers against risk is not raised.
|11.||Disclosure of Fees, Charges, Soft Benefits and Preferential Remuneration|
Despite the disquiet about the costs, utility and bulk of the mandated disclosure documents, there is a story of some success. There has been an important shift in societal expectations regarding disclosure of fees and commissions and the disclosure of benefits received in connection with financial services. The Act assumes that consumers want to know how much they are paying for products and particularly for advice. This is a further aspect of choice and competition. This change in approach has been driven by regulatory initiatives and media campaigns. Yet even within this success story, there is further evidence of the risk to consumers of practices within the financial services industry.
ASIC took an important regulatory initiative by commissioning a report into fees and charges in order to further the success of the FSR reforms. The Ramsay Report canvassed Australian and international models of fee disclosure and examined a number of options to improve disclosure. Two major problems emerged: variations in the descriptions of fees and extent of disclosure, and consumer difficulties in understanding fee structures and thus the cost of an investment.
The Report made a number of suggestions. Descriptions and definitions of fees should be standardised. Disclosure of a single global fee figure could be misleading, and fees for administration and investment management should be properly described in a standardised way and disclosed separately. The common terms of ‘contribution fee’ and ‘withdrawal fee’ should be adopted for entry and exit fees. There should be distinct disclosure of the possibility of the provider increasing fees, and of the maximum amount to which fees may be increased. Providers should state that past fees are not indicative of future fees. There should be a way of showing the effect of fees on returns. Fees should be disclosed in dollars. Fees paid to advisers on an ongoing basis should be disclosed. ‘Soft commissions’ paid to advisers should be disclosed. There should be a standardised description of the buy/sell spread, ie, the percentage payable on all transactions by members entering or exiting a fund. The ability to negotiate with advisers should be disclosed. There should be better disclosure of actual fees paid in member periodic statements. Further, the Report suggested that there should be consumer testing of fee disclosure, that there should be a fee calculator on the ASIC website and that there should be industry discussion of disclosure of fees and charges to trustees.
Following the Ramsay Report, in August 2003 ASIC issued A Model for Fee Disclosure in Product Disclosure Statements for Investment Products, which had been developed in consultation with industry. After further consultation and some consumer testing, ASIC issued Our Fee Disclosure Model in June 2004.
The ASIC model is a single ‘see at a glance’ fee disclosure table to promote accessible information and comparability. The table should refer to all fees and costs, both those debited directly and those which come out of a common fund. The table should state the fee and describe its purpose, give the amount preferably in dollar terms or as a percentage, and say how and when the fee is recovered.
Additional information would include whether a fee includes commission payable to an adviser, whether the fee is negotiable, whether the fees can be varied or waived, and any maximum. Further information in the PDS could refer consumers to other aids to comparability and comprehension, such as the calculators on the ASIC website which work out the effect of fees on retirement savings. The point of all of this is to make it easier for consumers to compare fees and charges, and to enable consumers to ‘shop around’ and thus improve competition.
Also in the middle of 2004, new Regulations to the Corporations Act required fees and charges in PDSs and SOAs to be stated as an amount in dollars. Certain matters may be disclosed as percentages if ASIC determines that for a compelling reason, dollar disclosure is impossible or would impose ‘an unreasonable burden’.
At the same time as the regulatory push on clear disclosure, preferably in dollar terms, of fees, there was another contemporaneous push for the disclosure of ‘soft benefits’. These are benefits other than a basic commission or fee that would not otherwise be evident as a fee or burden to the consumer. ‘Soft dollar benefits’ have been used particularly in the financial planning industry. An ASIC research report identified 11 categories of benefits which would usually be provided to eligible individual advisers for recommending particular products or brands, or for generating a certain volume of revenue. The Report made a number of pertinent comments: that there is significant evidence that soft dollar benefits do influence advice and product selection; that fund managers compete to attract advisers to their product rather than competing to offer the best benefit to the consumer; that soft dollar benefits are funded indirectly from fees charged to consumers; and that fund providers use these higher fees to create incentives for financial planning firms that are able to influence advice. ASIC found that while some firms did explain soft dollar benefits, others failed to do so or did not do so effectively.
Failure to properly disclose soft dollar benefits in one of the mandated disclosure documents (either the FSG or the SOA) is a failure to disclose matters that may be capable of influencing advice. It is also a failure to give the level of detail reasonably required for the retail client to make a decision to acquire a product or act on advice, and a failure to provide information in a clear manner. Thus, failure to disclose soft dollar benefits may result in giving a defective disclosure document.
Preferential remuneration is the higher commission paid to financial advisers who recommend financial products which are issued by their institution rather than by third-party fund managers. This has also been in ASIC’s sights. Advisers are paid by commission from fund managers rather than by a fee for service and because fund managers depend on advisers to promote their fund. This causes fund managers and advisers to be co-dependent. One of the questionable practices of advisers has been recommendations to relatively small retail clients to invest in master trusts, without proper explanation of the advantages and disadvantages of master trusts. To some extent, this has been because of low administration costs for advisers who are linked to a master trust. In an ASIC study, only 52 per cent of preferential remuneration payments were disclosed. The study also revealed incidents of ‘churning’, where a consumer is moved from an external product to an in house product.
When ASIC conducted a survey on the quality of financial planning advice in 2003, it found that only half of the planners surveyed reached an acceptable standard and 14 per cent failed to meet minimum legal requirements. These plans were judged on pre-Financial Services Reform Act (2001) (Cth) standards. Matters where the average score was less than five out of 10 included explanation of investment risks, justification of why the client should invest in a particular product, explanation of the reason for investment vehicles and asset allocation, and disclosure of product fees. In the preferential remuneration study, ASIC also found shortcomings in the quality of advice, and concluded that the inadequate documentation of the ‘know your product, know your client’ rules meant that it was likely that many recommendations were made because of higher remuneration, rather than in the best interests of the client. This was confirmed in statements made by the Financial Planning Association in the context of managing conflicts of interest, which suggested that members may be selling products that are not suitable for the long-term interests of clients. Such products were identified as home ownership products, lending tools, financing tools, and reverse mortgages. One commentator said ‘there is a lack of information about those products in terms of pricing and the level of risk’.
The scrutiny and public exposure of remuneration practices has put pressure on actors within the financial services industry and empowered some consumers to ask more questions. Industry has responded by promulgating an industry code of practice which bans certain practices and discourages others. Further draft principles have been promulgated to deal with conflicts of interest in the financial planning industry. The changes in this area may be of greatest benefit to consumers in protecting individuals against bad faith, unsuitability and complexity risk.
12 Conduct Standards
The standard of conduct expected of persons engaged in economic activity reflects behaviour that should prevent market failure. It is suggested that behaviour associated with market failure includes the creation of information inadequacies and unequal bargaining power, and also failure to protect the interests of future generations, for instance through activities such as not protecting the environment. Many forms of behaviour that might create information inadequacies (such as fraud and misrepresentation), or unequal bargaining power, (such as undue influence and even breach of fiduciary duty), are within the province of the general law, most notably contract law and equity. Conduct standards, like disclosure rules, also address bad faith risk along with complexity and unsuitability risk.
The prime conduct standard in Australian jurisprudence is the statutory prohibition against misleading or deceptive conduct which was originally introduced in the Trade Practices Act. This standard has been partially replicated for application to financial services in the ASIC Act and in the Corporations Act. Licensing and mandatory disclosure fall squarely within the domain of statute-based rules, notwithstanding references to external industry-based dispute resolution systems often based on self-regulatory codes of conduct. Conduct standards involve legal prohibitions intended to set a framework of positive behaviour supplemented by industry-based rules. The Wallis Inquiry proceeded on the basis that it is a principle of good regulation that ‘consumers should understand the nature of promises made to them and the likelihood that such promises will be kept.’ The information about rights, terms and conditions required in the PDS addresses the issue of the nature of promises made by providers. Conduct standards go to the circumstances in which promises are made and carried out.
Formerly, this prohibition against misleading or deceptive conduct in trade or commerce stretched across the breadth of economic life and became a substitute for other forms of action, such as misrepresentation, passing off, negligence and the like. As a conduct standard with civil consequences, there were no defences to a successful claim for liability. It derived its protective power for both consumers and business competitors from its remedies, which included statutory injunctions, rescission and variation of contract, and damages for the entirety of any causally connected loss. This statutory prohibition was supplemented by a number of more specific provisions (including regulation of selling practices), echoed in the wording of various codes of practice, and was complemented by a statutory regime which prohibited unconscionable conduct.
From 1998, this began to change. Paradoxically, the change was driven by the potency of the misleading or deceptive conduct provision. The success in finding a prospectus misleading or deceptive, and thus in contravention of the general provision, prompted a rethink of that general provision. This was because the Corporations Law regime had the benefit of statutory defences specific to misleading statements in a prospectus, whereas the general provision had no such defences. First, in concert with proposed financial services reform, a separate conduct regime for financial services was created in a different piece of legislation. The general regime no longer applied to financial services. These new conduct rules, aimed specifically at financial services, at first echoed the general regime but in time diverged from it.
The result is that now, although the two statutes regulating financial services in general contain a prohibition against misleading or deceptive conduct, both contain an exemption for takeover and fundraising documents, and also for conduct ‘in relation to’ defective FSR disclosure documents: the FSG, PDS or SOA. These documents are defective if they omit the mandatory information that must be disclosed or if they are misleading. It is an offence to give a defective disclosure document. The civil liability regime for defective disclosure documents has defences attached to it.
This means that despite the importance accorded to disclosure as a mechanism for achieving consumer protection, any consumer or retail client who receives a misleading or deceptive disclosure document does not have the same level of protection from misleading conduct as exists in other areas of economic life, where there are no defences to an action for misleading or deceptive conduct.
There is a further erosion through a reduction in the availability of damages. Until mid-2004, a successful applicant could recover all of the loss causally connected with the contravening conduct. As a result of the insurance crisis in Australia following the collapse of a large insurance firm, and the unavailability of reinsurance in the climate of the earliest years of the century, first state governments, and then the Commonwealth Government, introduced caps on liability and then proportionate liability. The power of misleading and deceptive conduct action as a deterrent and as a means to seek a remedy has been reduced, and in effect brought into line with an action in negligence.
For the last few decades, the prohibition against misleading or deceptive conduct has been a prime regulatory tool of selling practices. There is often a thin line between giving advice and selling a product. Information about a product or service can serve both functions. For instance, information on the past performance of managed funds may be used to assist in choosing an investment, yet it may also be used to persuade a person to choose a particular investment.
Both the Corporations Act and the ASIC Act regulate selling practices. Advertising of financial products is regulated so that reference must be made to the availability of the PDS and, to the fact that it should be considered before any decision is taken. In addition to the general prohibitions against misleading conduct, there is also a prohibition against representing that financial services have performance characteristics, uses or benefits that they do not have, and misleading the public as to the nature, characteristics, suitability for their purpose or quantity of any financial services. The regulator, ASIC, has taken a particular interest in financial services providers advertising the past performance of investment products. ASIC has distinguished between ‘misleading’ and ‘imbalanced’ information, to protect consumers against unintended risks and unrealistic expectations about risk.
There are three separate prohibitions against hawking or unsolicited selling of financial services depending on the type of product — securities, managed investment products or the generic ‘certain financial products’. The latter is relevant for superannuation, insurance and deposit products. The purpose of these provisions is to prevent high pressure selling. The provisions apply to unsolicited phone calls and meetings but not to letters, faxes and emails.
Once a financial product has been sold, it is possible to undo the sale if the cooling-off provisions are applicable. They apply to insurance, investment and superannuation. There is a 14 day period that runs from the date of the confirmation of the transaction or the date of issue or sale, whichever is the earlier. As this is a form of statutory rescission, the usual bars such as exercising a right under the product, or losing a right to the product, apply.
It is argued that the best protection for consumers is compliance by the financial services industry with a fair and transparent principles-based regulatory system. The centrality of compliance in Australian financial services regulation was first trialled in managed investments legislation, which predated comprehensive financial services reform. At the time surrounding the introduction of FSR, there was a concentrated effort by ASIC to stress the importance of compliance with the new regulatory system, the role of the compliance officer and the importance of locating compliance close to the board of directors within the organisation. It has been necessary to comply fully with financial services legislation only since March 2004.
Financial Services Reform was supposed to result in ‘efficiencies and cost savings’ for financial service providers. It was believed that ‘disclosure-based regimes should lessen the compliance burden for industry’. FSR has been expensive for industry. After one year, industry was loud in its complaints about the high cost of compliance with the reforms. There was an exodus of financial planners from the industry and FSR was blamed. The superannuation industry complained that it received mixed messages about disclosure documents from the regulator:
On the one hand, ASIC senior staff reiterated the need for PDSs to be “consumer-centric” and blaming long complex documents on “lawyers”. At the same time ASIC enforcement staff were pressuring superannuation funds ... to make lengthy additions to their “deficient” PDSs.
The faith in, and complaints about, compliance protect consumers from risks, yet obscure the fact that there are risks to them. Compliance has become a mantra and a ‘burden’.
In tandem with the deliberate exposure of the Australian economy to international and national competition, since the 1980s there has been a high-level engagement with notions of regulatory efficiency that have encompassed two key principles: a significant role for industry in its own regulation, and the importance of fostering a culture of compliance with regulatory requirements within industry. The first took the form of extensive debate on the utility of self- or quasi-regulation and indeed the mandating of certain forms of self-regulation. The second witnessed an intensification of the very use of the word ‘compliance’ and a massive growth within organisations of individual positions devoted to compliance. We have seen the birth of the ‘compliance professional’.
The importance of self-regulation to achieving overall regulatory objectives has been explained in terms of cost, responsive rule-making, and the engagement of the regulated. The varieties of self-regulation are said to reduce costs for both government and business, and result in needs-specific and therefore better targeted rules which are relatively easy to change. Rules formulated in agreement with industry experts and thus ‘owned’ by industry should be internalised and result in a high level of compliance.
The notion of compliance is not restricted to voluntary or self-regulatory rules. It is linked to new understandings of regulation, governance and business. Since the mid-20th century, the language of concern for fair markets has moved from ‘enforcing the laws’, ‘controlling business’ and ‘regulatory capture’ to ‘responsive regulation’ and ‘styles of regulation’. ‘Compliance’ appears to have surfaced as an antonym to deterrence and enforcement and as an alternative method of social control, or alternatively, as a cost-effective ex ante form of enforcement to deter violations. It was also viewed as a bargain model of regulation which allowed for trade-offs between promises of compliance, and decisions to enforce and prosecute. If a corporation was a good corporate citizen, non-compliance was a form of expressive rebellion against unsuitable rules and therefore the rules should be changed. If the corporation was incompetent, it could be educated for compliance.
Compliance was linked with rule-making from the inception of its discussion as a form of regulation. If rules were over-inclusive to their purpose then they would not be complied with; conversely, if rules were under-inclusive there may be socially undesirable practices that were not regulated. This meant that there was a coalescence of interest between self-regulation and compliance. Self- or co-regulation could ensure that rules were targeted, thereby reducing both over, and under-inclusiveness in rule formation. This in turn should result in compliance with the rules and reduce the administrative costs of enforcement. Thus, the inquiry turned from non-compliance and enforcement, to methods of assuring compliance along with continued interest in the discretion of regulators.
The Australian concentration on compliance may be partially explained by the widespread influence of the Ayres and Braithwaite formulation of an enforcement pyramid, resting on persuasion or compliance as a strategy to achieve the goals of regulation, and its adoption within regulatory agencies, such as the Australian Competition and Consumer Commission (ACCC) and the Australian Taxation Office. Regulatory agencies such as the ACCC gained new powers with which to ‘bargain’ with non-compliers. The ACCC self-consciously promoted the role and status of compliance professionals within organisations, who were responsible for ensuring adherence to legislation and who promoted the values inherent in the particular regulatory objectives. This approach to compliance was also adopted by ASIC, particularly in the lead up to FSR.
Yeung is critical of this technocratic approach to compliance, regarding it as pursuing policy goals inherent in regulation without sufficient concern for constitutional values such as certainty, accountability, transparency, proportionality and rationality in the administration of law. She suggests that there is a lack of clarity as to whether there should be compliance with collective goals and values, or just with the set regulatory standards. Yeung’s concern with ‘too much’ discretion being at odds with the rule of law contrasts with Black’s embracing of an ever-expanding concept of regulation, the interpretive communities of rule-makers, the enrolment of actors in decentred regulation and particularly the view that the greater the shared understanding of the rule and acceptance of regulation, the greater the compliance. Compliance with shared collective goals would require clear expression of those goals and values, and talk about risk to consumers.
As with the conversation on risk, the consumer is largely missing from the discussion of compliance, although the consumer does make an appearance in the debate on self-regulation. Two views emerge of the relationship of consumer protection to compliance. Reasonable regulation and enforcement produces voluntary compliance, which in itself is the major source of consumer protection. Responsive regulation fails to make law sufficiently general and incorporates the interests of business in enforcement, which together place the consumer in a disadvantageous position. Both views may be applicable to financial services reform.
|14.||Consumers, Risk and Compliance|
Australian financial services law is unique in that it is a single code that regulates a vast variety of products and services, albeit with variations. Australia is also singular in the exposure of consumers to performance risk in the market. Although the regulatory systems of other countries like Australia do not protect for performance risk, few others have de-linked the responsibility for retirement incomes from the state to such an extent. Australia has adopted a market-based solution to retirement incomes, and the state has a limited capacity to stand between the consumer and the market.
This makes the form of regulation and the approach of the regulator of particular moment. By statute, consumers must now be given extensive information about the financial services and products they are contemplating, detailed information about the basis of any personal advice given to them, and information about fees, commissions and any other potential conflicts of interest to enable them to judge if the person they are dealing with is acting in his or her own interest, or in the interest of the consumer. Consumers are protected against pressure selling and against unfair dealing.
The regulator is proactive and responsive. The insistence on dollar disclosure as well as percentage disclosure of fees and preferential remuneration, the increasing scrutiny of past performance claims, and the new refinements to disclosure are evidence of this. Both the regulator and the regulated have been engaged in a learning process, as indicated by the public conversation on the benefits or disadvantages of long disclosure documents and the costs of compliance.
Yet despite complaints from industry and real issues regarding the helpfulness of extensive disclosure, compliance with the legislative strategies to protect consumers should protect against some risk. Any conclusions about outcomes of financial services reform are tentative and in a modest way seem to be working. Disclosure of the information required in the formal disclosure documents, and rigorous information about fees, should give some protection against complexity and the risk of choosing the wrong product. Indeed, this appears to be the case with respect to choice of superannuation fund. It is clear that the disclosure requirements are changing the culture and remuneration practices of some financial services intermediaries. Additionally, observance of conduct standards should protect against the risk of bad faith, and licensing and prudential regulation should protect against institutional risk.
Would a clearer articulation of the shifting of risk from institutions to the consumer, the permeation of concern for risk to the regulator at the expense of clear talk about risk to the consumer, the lack of protection from the risks of poor performance in the market place, and of the link between legislative strategies and the risks faced by consumers make a difference? Whether differences in articulated policy, say between the UK and Australia, represent a difference in outcomes for individual investors is not explored here. No difference in practice may result from the fact that, in Australia, the protection of individuals from certain types of risk has been implicit rather than explicit, and is a by-product of regulation rather than a principal objective. However, the relative absence of the consumer in the conversations on risk and compliance should be open to scrutiny.
It is recognised that both compliance and risk management are concerned with promoting a moral community. The allocation of risk between groups in society, and what is an acceptable risk, remain moral questions. If the financial services market were entirely predictable it would be possible to protect for performance risk. Since this is a risk that is a danger for individual consumers, the value placed on the possible outcome that some consumers will fail should be debated. At the same time, we should also ask what value we place collectively on the outcomes and sustainability of not, as a society, fully engaging in the market.
[∗] Professor of Business Law, School of Business, The University of Sydney.
 Ulrich Beck, Risk Society: Towards a New Modernity (1986) (trans Mark Ritter, 1992).
 Mary Douglas, Risk and Blame: Essays in Cultural Theory (1992), see especially at 14–30, 39–45, 47.
 Boris Holzer & Yuval Millo, >From Risks to Second-order Dangers in Financial Markets: Unintended Consequences of Risk Management System: Discussion Paper No 29 (2004).
 Alex Preda, ‘The Investor as a Cultural Figure of Global Capitalism’ in Karin Knorr Cetina & Alex Preda (eds), The Sociology of Financial Markets (2005) at 144, 148, 158.
 Corporations Act 2001 (Cth) s761G (hereafter CA); Australian Securities and Investments Commission Act 2001 (Cth) s12BC (hereafter ASIC Act).
 As Yeung also points out, others stress the importance of private interest in regulatory frameworks and note that regulation often benefits particular groups within society, not always those whom the regulation was ostensibly intended to benefit: Karen Yeung, Securing Compliance: A Principled Approach (2004) at 5–8.
 Holzer & Millo, above n3; Anette Mikes, Enterprise Risk Management in Action: Discussion Paper No 35 (2005); Michael Power, ‘Enterprise Risk Management and the Organisation of Uncertainty in Financial Institutions’ in Knorr Cetina & Preda, above n4; Michael Power, The Risk Management of Everything: Rethinking the Politics of Uncertainty (2004); Bridget Hutter, The Attractions of Risk-based Regulation: Accounting for the Emergence of Risk Ideas in Regulation: Discussion Paper No 33 (2005).
 Power, ‘Enterprise Risk Management’ above n7 at 263; Power, The Risk Management of Everything, above n7.
 Christopher Hood, ‘The Risk Game and the Blame Game’ (2002) 37 Government and Opposition 15; Hutter, above n7.
 Hutter, above n7.
 Id at 8.
 Power, The Risk Management of Everything, above n7 at 10.
 Treasury, Financial System Inquiry: Final Report (1997) at 177 (hereafter Wallis Report): <http://fsi.treasury.gov.au/content/FinalReport.asp> (22 February 2006).
 Id at 2.
 Peter Costello, Commonwealth, House of Representatives, Parliamentary Debates (Hansard), 2 September 1997 at 7516; Peter Costello, Treasurer, ‘Reform of the Australian Financial System: Press Release No 102’ (2 September 1997).
 Corporate Law Economic Reform Program, Financial Markets and Investment Products: Promoting Competition, Financial Innovation and Investment: Proposals for Reform: Paper No 6 (1997) (hereafter CLERP 6).
 Id at 7, 8.
 Id at 26.
 In Australia, see for instance Trade Practices Act 1974 (Cth) Part V, Part VA (hereafter TPA).
 Monica Sah & Gordon Cameron, ‘Controlling the Quality of Financial Advice’  JBL 143 at 145.
 Wallis Report, above n13.
 See below at n72.
 Financial Services Authority, A New Regulator for the New Millennium, January 2000: <http://www.fsa.gov.uk/pubs/policy/p29.pdf> at 8–9 (22 February 2006); see also Peter Cartwright, Banks, Consumers and Regulation (2004) at 39. The Securities and Exchange Commission (hereafter SEC) says: ‘[t]he world of investing is fascinating, and complex, and it can be very fruitful. But unlike the banking world, where deposits are guaranteed by the federal government, stocks, bonds and other securities can lose value. There are no guarantees. That’s why investing is not a spectator sport. By far the best way for investors to protect the money they put into the securities markets is to do research and ask questions’: Securities and Exchange Commission, The Investor’s Advocate: How the SEC Protects Investors and Maintains Market Integrity (23 December 2005): <http://www.sec.gov/about/whatwedo.shtml> (22 February 2006). Note that in Australia, the Government does not guarantee any financial promises. See also Paul von Nessen, ‘The Review of the Managed Investments Act: “Steady as She Goes” ’ (2002) 13 JBFLP 113.
 For the principles of review, see National Competition Council, Compendium of National Competition Policy Agreements (2nd ed, 1998) at 19–20 (Competition Principles Agreement, 11 April 1995 Clause 5, Legislation Review): <http://www/ncc.gov.au/pdf/PIAg-001.pdf> .
 Productivity Commission, Review of the Superannuation Industry (Supervision) Act 1993 and Certain Other Superannuation Legislation: Inquiry Report No 18 (2001) at Figure 2.1, which refers to 1983–2001. The Superannuation Guarantee Levy legislation requires employers to make superannuation contributions on behalf of all employees, subject to limited exceptions, and is intended to reduce dependence on the age pension. Before the era of compulsory superannuation, employers made superannuation contributions usually to defined benefit funds, with the ‘defined benefits’ becoming available to the employees only when the required service was completed. Employers were prepared to assume the risk in providing a defined benefit (which might from time to time require ‘top up’ payments to the trustee or alternatively a ‘contributions holiday’, depending on the fund’s performance and employees becoming entitled) as superannuation was viewed by the employer as a reward for long-serving employees. Once superannuation contributions became compulsory, employers increasingly closed down defined benefits funds and contributed to accumulation funds where the employee is exposed to the risks and benefits of the fund’s performance.
 Dividend imputation, which was introduced in 1986 in Australia, has the effect that dividends paid by companies to other companies are taxed only to the extent that the dividend has been paid out of profits that have not been subject to Australian tax. When paid to an individual, a dividend, to the extent that it has been paid out of taxed profits is grossed-up for this tax, the grossed-up amount is included in the individual’s assessable income and a credit is given for the tax paid on the underlying profits. Since 2001, investors whose imputation credits exceed tax on their overall income have been given a tax refund. Previously, this level of tax transparency was available for retail investors only if they invested in unit trusts which had a restricted range of investments, typically property. Dividend imputation has therefore made tax transparency available for a much broader range of investments.
 See Consumer Credit Legal Centre (NSW) Inc, A Report to ASIC on the Finance and Mortgage Broker Industry (March 2003): <http://www.asic.gov.au/pdflib.nsf/LookupByFileName/Finance_mortgagebrokers_report.pdf/$file/Finance_mortgagebrokers_report.pdf> Australian Consumers’ Association & Australian Securities and Investments Commission, Survey on the Quality of Financial Planning Advice: ASIC Research Report (February 2003): <http://www.asic.gov.auasic.nsf/lkuppdf/ASIC +PDFW?opendocument & key=Advice_Report_pdf> (22 February 2006).
 Ian Manning, ‘Are We Heading for a Fall?’, paper presented at the 2nd National Consumer Credit Conference, Consumer Affairs Victoria, 8–9 November 2004.
 On increases in household debt, see Reserve Bank of Australia, ‘Household Debt: What the Data Shows’ Reserve Bank of Australia Bulletin (1 March 2003).
 Ivan Gunning, Full Report of the Gunning Committee of Inquiry into the Finance Brokers Supervisory Board (2000).
 See the HIH Royal Commission, The Failure of HIH Insurance (2003). Parliament of Australia, Senate Select Committee on Superannuation and Financial Services, Prudential Supervision and Consumer Protection for Superannuation, Banking and Financial Services: Second Report – Some Case Studies (2001), Chapter 4, ‘Commercial Nominees of Australia Pty Ltd’ at 25–50, outlines the collapse of CNA, a trustee company, and the subsequent loss of superannuation funds. On the situation in the late 1990s with runs on deposit takers, public property trusts and life insurers, see Marianne Gizycki & Philip Lowe, ‘The Australian Financial System in the 1990s’ in David Gruen & Sona Shrestha (eds), The Australian Economy in the 1990s: Reserve Bank of Australia 2000 Conference (2000).
 This was the situation with some lines of insurance after the collapse of HIH and the reinsurance problems after 2001.
 If market linked.
 The HIH Royal Commission, above n31.
 See the Superannuation Guarantee (Administration) Act 1992 (Cth), as amended by the Superannuation Legislation Amendment (Choice of Superannuation Funds) Act 2004 (Cth).
 Duncan Hughes, ‘Investors seen ready to take on more risk’ Sydney Morning Herald (12 January 2005). The article reports on a survey of investment managers by Mercer Investment Consulting, Fearless Forecast, which reports on the increased interest in alternative investments (hedge funds, venture capital funds, infrastructure funds and emerging markets).
 Financial Sector Advisory Council, Review of the Outcomes of the Financial System Inquiry 1997 (2003) at 2.
 A survey by the Institute of Chartered Accountants in Australia found 18 per cent of Australians know the difference between a franked and unfranked dividend, 23 per cent are confident of reading a balance sheet, yet 60 per cent think they are financially literate. 80 per cent got financial advice from the media and only 38 per cent from professional advisers: Australian Financial Review (12 January 2005). In March 2004, the Government established a financial literacy taskforce.
 On the responsibilisation of risk and the responsibilisation of consumers of financial services, see Power, ‘Enterprise Risk Management’, above n7 and Toni Williams, ‘Separated at Birth but Joined at the Hip: a Critical Exploration of the Consumer Education Mandates of Financial Services Regulators in Canada and the UK’, paper presented at the 10th International Conference on Consumer Law, Lima, Peru, May 2005. Toni Williams, first drew my attention to this phenomenon.
 Julia Black & Richard Nobles, ‘Personal Pensions Misselling: The Causes and Lessons of Regulatory Failure’ (1998) 61 Mod LR 789. See also Sah & Cameron, above n20.
 Moran says the common features are codification, which involves elaborate rules; institutionalisation, which means that regulatory institutions are growing in importance, authority and the acquisition of resources; and juridification, which means a special kind of codification which involves putting rules into statutes and settling disputes in courts: Michael Moran, The Politics of the Financial Services Revolution (1991).
 Wallis Report, above at 177.
 Peter Costello, above n15.
 Wallis Report, above n13 at 2, 177, 186; CLERP 6 Report, above n16 at 7, 26.
 Wallis Report, above n13 at 187.
 CLERP 6 Report, above n16 at 26.
 Wallis Report, above at 2, 196; CLERP 6 Report, above n16 at 26, 44.
 CA s760A.
 Explanatory Memorandum accompanying the Financial Services Reform Bill 2001 (Cth) at 1.
 See particularly Julia Black, ‘Talking About Regulation’  Public Law 77; Julia Black, Mapping the Contours of Contemporary Financial Services Regulation: Discussion Paper No 17 (2003).
 ASIC Act ss1, 12A.
 ASIC Act (Cth) s1(2)(b).
 ASIC Act ss12A(2), (3). See also ASIC, Submission to the Senate Select Committee on Superannuation and Financial Services (Inquiry into Superannuation and Financial Services) (January 2000): <http://www.asic.gov.au/asic/pdfflib.nsf/LookupByName/senate_paper.pdf/$ file/senate_paper.pdf> . Please note all ASIC sources are available from <www.asic.gov.au> (22 February 2006).
 Wallis Report, above n13, Recommendations 61–63.
 Reserve Bank Act 1959 (Cth) s10B(3).
 See Elisabeth Wentworth, ‘Direct Debits, Consumer Protection and Payments System Regulation – Issues of Policy and Reform’ (2002) 13 JBFLP 77.
 Payments Systems (Regulation) Act 1998 (Cth) s11. This is the background to VISA International Service Association v RBA  FCA 977.
 Australian Prudential Regulation Authority Act 1998 (Cth) s8.
 Financial Services Authority, above n23 at para 11–13. See also Peter Cartwright, Banks, Consumers and Regulation (2004) at 39.
 Christine Parker, ‘The Emergence of the Australian Compliance Industry: Trends and Accomplishments’ (1999) 27 ABLR 178; Christine Parker, ‘Evaluating Regulatory Compliance: Standards and Best Practice’ (1999) 7 TPLJ 62; Christine Parker, ‘Reinventing Regulation within the Corporation: Compliance-oriented Regulatory Innovation’ (2000) 32 Administration & Society 529; Christine Parker & Olivia Conolly, ‘Is there a Duty to Implement a Corporate Compliance System in Australian Law?’ (2002) 30 ABLR 273; Peter Carroll & Myles McGregor-Lowndes, ‘A Standard for Regulatory Compliance? Industry Self-regulation, the Courts and AS3806–1998’ (2001) 60 Australian Journal of Public Administration 80.
 ASIC, Submission to the Senate Select Committee, above n53 at 14, 18.
 See <http://www.fido.asic.gov.au/fido/fido.nsf> . See also the consumer website of the UK Financial Services Authority at <http://www.fsa.gov.uk/consumer/index.html> . This contrasts with the US Securities Exchange Commission which has an investor information site: see <http://www.sec.gov/investor.shtml> .
 ASIC, Submission to the Senate Select Committee, above n53 at 15, Table 2 at 16. See also ASIC, Consumer Education Strategy 2001–2004, October 2001: <http:/www.fido.asic.gov.au/asic/pdflib.nsf/LookupByFileName/consumer_ed_strategy.pdf/$file/consumer_ed_strategy.pdf> at 10 (22 February 2006).
 For an account of a ‘one agency’ model versus a ‘two agency’ model, see The HIH Royal Commission, above n31 at 202 .
 In addition, the RBA is responsible for the stability of the financial system, monetary policy and regulation of the payments system.
 In 1998, the Australian Securities Commission changed its name to the Australian Securities and Investments Commission (ASIC) and, as a result of the Wallis reforms, took on new functions including regulatory responsibility from the Insurance and Superannuation Commissioner (ISC) for the Superannuation (Resolution of Complaints) Act 1993 (Cth), the Insurance Contracts Act 1984 (Cth) and the Insurance (Agents and Brokers) Act 1984 (Cth), the latter since repealed. It also took over responsibility for parts of the Life Insurance Act 1995 (Cth), the Insurance Act 1973 (Cth), the Superannuation Industry (Supervision) Act 1993 (Cth) and the Retirement Savings Accounts Act 1997 (Cth). The administration of existing laws was transferred from the ISC to ASIC and APRA, but at this stage, substantive rules were not altered.
 The HIH Royal Commission, above n31 at 204.
 It is the intention to generate a return, not the fact of a return, that is important: CA s763B.
 Not all conceivable methods of managing risk are included. It does not cover extended manufacturers’ warranties: CA s763C.
 This includes direct debit, cheques, smart cards, and traveller’s cheques. Letters of credit and guarantees by a financial institution are excluded: CA s763D(1).
 CA ss765A(1)(h), 765A(1)(h)(ii), regulation 7.1.06. See further Kevin Lewis, ‘When is a Financial Product Not a Financial Product?’ (2004) 22 C&SLJ 103.
 These are providing financial product advice: dealing in a financial product; making a market for a financial product; operating a registered scheme; providing a custodial or depository service; or engaging in other prescribed conduct. CA s766A. Note that there is a clerks and cashiers exception.
 CA s766B.
 But it does not include anything in the Corporations Act Chapter Seven mandatory disclosure documents: CA s766B(6).
 CA s766B(3).
 CA s766B(4).
 CA s766C: there is a further exception to the ‘dealing on one’s own behalf’ exception and that is if the person is an issuer of financial products.
 CA ss761G(1), 761G(4).
 These are that the price of the product or products connected to the financial services is under $500,000, the assets of the individual person acquiring the product are under $2.5 million (or the person has a gross income of less than $250,000 for the last two years), a business acquiring the product has no more than 100 employees if a manufacturing business and no more than 20 if any other business, and the person is not a professional investor: CA s761G(7).
 This is similar to consumer insurance products for the purposes of the Insurance Contracts Act 1984 (Cth): CA s761G(5)(b), regulations 7.1.11–7.1.17. These include motor vehicle insurance, home building insurance, home contents insurance, sickness and accident insurance, consumer credit insurance, travel insurance, and personal and domestic property insurance.
 CA s761G(6).
 In the ASIC Act, a ‘consumer’ is a person who acquires financial services whose price does not exceed $40,000, or acquires services of a kind ordinarily acquired for personal, domestic or household use. A ‘consumer’ can also be a small business which acquires financial services for use in connection with the business at or below $40,000 or, if above this amount, of a kind ordinarily acquired for business use: ASIC Act ss12BC(1), (2).
 According to CA s765A(1)(h), the following are not financial products for the purposes of Chapter Seven: (i) a credit facility within the meaning of the regulations; (ii) a facility for making noncash payments (see s763D), if payments made using the facility will all be debited to a credit facility covered by subparagraph (i).
 ASIC Act s12BAA(7)(k).
 In other sectors of the financial services industry relevant to consumers there are additional and complementary regulatory regimes, as in the Insurance Contracts Act 1984 (Cth); the Superannuation (Resolution of Complaints) Act 1993 (Cth); Life Insurance Act 1995 (Cth); the Retirement Savings Accounts Act 1997 (Cth); the Superannuation Industry (Supervision) Act 1993 (Cth).
 Department of Industry, Science and Tourism (Consumer Affairs Division), Benchmarks for Industry-Based Customer Dispute Resolution Schemes (1997); Task Force on Industry Self-Regulation, Industry Self-Regulation in Consumer Markets: Report Prepared by the Taskforce on Industry Self-Regulation (2000); Department of the Treasury Canberra 41; Commonwealth Interdepartmental Committee on Quasi-regulation, Grey-Letter Law: Report of the Commonwealth Interdepartmental Committee on Quasi-regulation (1997); Office of Regulation Review, A Guide to Regulation (2nd ed, 1998): <http://www.pc.gov.au/orr/reports/guide/reguide2/reguide2.pdf> (22 February 2006).
 Jillian Segal, ‘Monitoring the Self Regulatory Landscape’, speech presented to the Financial Services Consumer Conference, 9 November 2000.
 Groups such as the Australian Bankers’ Association Ltd, the Insurance Council of Australia Inc, the Investment and Financial Services Association Ltd, the Financial Planning Association of Australia Ltd and the Mortgage Industry Association of Australia support codes of practice and standards, such as the General Insurance Code of Practice. These codes and standards embed conduct standards and dispute resolution schemes such as the Banking and Financial Services Ombudsman and Financial Industry Complaints Service, for resolving complaints between financial service providers and consumers. See <http://www.asic.gov.au/asic/asic_polprac.nsf/byheadline/Codes+of+practice?openDocument> and <http://www.asic.gov.au/asic/asic_ polprac.nsf/byheadline/ASIC+approved+external+resolution+schemes?openDocument.
 Robert Kagan, ‘Editor’s Introduction: Understanding Regulatory Enforcement’ (1989) 11 Law & Policy 89.
 Anthony Duggan, ‘Occupational Licensing and the Consumer Interest’ in Anthony Duggan & Leanna Darvall (eds), Consumer Protection Law and Theory (1980).
Id at 169.
 Roy Goode, Consumer Credit (1978).
 Anthony Ogus, Regulation: Legal Form and Economic Theory (1994).
 Id at 165.
 CA Part 7.2.
 CA Part 7.3.
 CA Part 7.6.
 ASIC, Licensing: Organisational Capacities: ASIC Policy Proposal: FSRB Policy Proposal Paper No 2 (April 2001): <http://www.asic.gov.au/asic/pdflib.nsf/LookupByFileName/fsr2 orgcap.pdf/$file/fsr2orgcap.pdf> (22 February 2006); ASIC, Licensing: Managing Conflicts of Interest: ASIC Policy Proposal (October 2003): <http://www.asic.gov.au/asic/pdflib.nsf/LookupByFileName/conflict_ppp.pdf/$file/conflict_ppp.pdf> (22 February 2006).
 The Insurance (Agents and Brokers) Act 1984 (Cth), which contained both registration and disclosure provisions, was repealed.
 CA s912A; ASIC, Policy Statement 164: Licensing: Organisational Capacities (8 November 2002): <http://www.asic.gov.au/asic/pdflib.nsf/LookupByFileName/ps164.pdf/$file ps164.pdf> (22 February 2006).
 CA s912A(g); ASIC, Policy Statement 139: Approval of External Complaints Resolution Schemes (8 July 1999): <http://www.asic.gov.au/asic/pdflib.nsf/LookupByFileName/ps 139.pdf/$file/ps139.pdf> (22 February 2006); ASIC, Policy Statement 165: Licensing: Internal and External Dispute Resolution (28 November 2001): <http://www.asic.gov.au/asic/pdflib.nsf/LookupByFileName/ps165.pdf/$file/ps165.pdf> (22 February 2006). Approved schemes include the Financial Industry Complaints Service, the Insurance Ombudsman Service, the Banking and Financial Services Ombudsman, and the Credit Union Disputes Resolution Centre.
 CA s912A(1)(aa). See further ASIC, Policy Statement 181: Licensing: Managing Conflicts of Interest (30 August 2004): <http://www.asic.gov.au/asic/pdflib.nsf/LookupByFileName/ps181.pdf/$file/ps181.pdf> (22 February 2006).
 CA s912A(1)(aa).
 CA s912A(1)(a).
 ASIC, Research Analyst Independence: ASIC Surveillance Report (22 August 2003): <http://asic.gov.au/asic/pdflib.nsf/LookupByFileName/Analyst_Independence_Report.pdf/$file/Analyst_Independence_Report.pdf> at 33 (22 February 2006).
 ASIC, Policy Statement 181, above n102.
 See id which adds at 6:
Note: For example: (a) Licensee A has an interest in encouraging client B to invest in higher risk products that result in high commissions, which is inconsistent with client B’s personal desire to obtain a lower risk product; (b) Licensee C has an interest in maximising trading volume by its clients (including client D) in order to increase its commission revenue, which is inconsistent with client D’s personal objective of minimising investment costs; (c) Licensee E is the trustee of a retail superannuation fund and has an interest in maximising the fees it earns from managing the fund (and therefore maximising the returns to its shareholders), but the beneficiaries have an interest in minimising the fees they pay as members of the fund.
 Harris v Digital Pulse Pty Ltd  NSWCA 10; (2003) 56 NSWLR 298.
 Clayton Utz, Risky Business VIII, 8 March 2005.
 See generally, Pamela Hanrahan, ‘Managed Investment Schemes: The Position of Directors under Chapter 5C of the Corporations Law’ (1999) 17 C&SLJ 67.
 Donald Graham Hill, ‘The True Nature of a Member’s Interest in a Superannuation Fund’, address given at Superannuation 2002: A National Conference for Lawyers, the Law Council of Australia and the Leo Cussen Institute, 21–23 February 2002.
 Agents and principal fall within a recognised category of fiduciary relationship see Hospital Products Ltd v United States Surgical Corporation  HCA 64; (1984) 156 CLR 41 at 96–97 (Mason J).
 In Daly v Sydney Stock Exchange Ltd  HCA 25; (1986) 160 CLR 371, Brennan J said at 385 ‘whenever a stockbroker or other person who holds himself out as having expertise in advising on investments is approached for advice on investments and undertakes to give it, in giving that advice the adviser stands in a fiduciary relationship to the person whom he advises’. Note that in Pilmer v The Duke Group Limited (in liq)  HCA 31; (2001) 207 CLR 165, an accountant who provided an expert valuation was held to owe no fiduciary obligation. In this instance the accountant had not acted as a corporate adviser. But note that the Court did not consider the definition of ‘advice’ in CA s766B.
 Treasury, Refinements of Financial Services Regulation Proposals Paper (2005) at 1.
 3738 licences, of which 23.5 per cent are for general insurance, 20.9 per cent for financial advisers, 15 per cent for managed investments, 12.5 per cent for life insurance, 6.4 per cent for superannuation and 4.4 per cent for deposit takers (and also 14.3 per cent for market dealers): ASIC, Media Release 04–088: ‘Overview of ASIC’s Implementation of the Financial Services Reform Act’ (29 March 2004).
 See, for instance, Australian Securities and Investments Commission v Manito Pty Ltd (2005) 53 AGSR 56; Australian Securities and Investments Commission v Online Investors Advantage Inc (2005) 23 ACLC 1929.
 CA s912B. See also, Treasury, Compensation for Loss in the Financial Services Sector: Position Paper (2003), which was concerned with risk in the service as opposed to risk in the product. It rejected the option of a statutory compensation fund. One of the submissions suggested that compensation extend to performance of the financial product.
 Ogus, above n93 at 139.
 See the Explanatory Memorandum accompanying the Financial Services Reform Bill 2001 (Cth) at para 14.28; see also ASIC, Policy Statement 168: Disclosure: Product Disclosure Statements (and Other Disclosure Obligations), May 2005: <http://www.asic.gov.au/asic/pdflib.nsf/LookupByFileName/ps168.pdf/$file/ps168.pdf> (22 February 2006), which sets out the principles of good disclosure: timely; relevant and complete; promote product understanding; promote comparison; highlight important information; and have regard to consumers’ needs. For an analysis of product disclosure, see Dimity Kingsford Smith, ‘Is “Due Diligence” Dead?’ Financial Services and Products Disclosure Under the Corporations Act’ (2004) 22 C&SLJ 128.
 Alan Schwarz & Louis Wilde, ‘Intervening in the Market on the Basis of Imperfect Information’ (1979) 127 U Pa LR 630.
 Ogus, above n93 at 141.
 Annette Nordhausen, ‘Consumer Information: Myths, Realities and the Future’, paper presented at the 10th International Consumer Law Conference, International Association of Consumer Law, 4-6 May 2005.
 CA s951A.
 These principles are that disclosure should be timely, relevant, complete, promote understanding and comparison, highlight important information and have regard to consumers’ needs: see ASIC, above n119.
 ASIC, Media Release 04-062: ‘FSR Disclosure to Be Clear, Concise and Effective’ (10 March 2004); CA ss942B(6A), 947B(6), 1013C(2).
 One estimate of implementation costs is $200 million: Pamela Hanrahan, ‘Tinkering with FSR Design May Get Model Right’ Australian Financial Review (June 1 2005).
 CA s941E.
 CA ss942B, 942C. See also ASIC, Policy Statement 175: Licensing: Financial Product Advisers – Conduct and Disclosure (30 November 2005): <http://www.asic.gov.au/asic/pdflib.nsf/LookupByFileName/PS175.pdf/$file/PS175.pdf> at 12–16 (22 February 2006).
 In some circumstances, the obligation extends to persons who otherwise do not have to hold an AFSL. The obligation to give the PDS falls on a ‘regulated person’. A ‘regulated person’ is defined in CA s1011B, and includes: an issuer, seller in certain circumstances (basically secondary sales); any financial services licensee; any authorised representative, any person not required to hold an AFSL because they are the trustee of a self-managed superannuation fund, or because they are exempted by regulations, and any person who is required to hold an AFSL but who does not. The PDS replaced (some) prospectuses, Superannuation Key Features Statements, and Insurance Customer Information Brochures.
 There are some exceptions to this particularly with regard to superannuation; Corporations Regulations 2001 (Cth) Schedule 10A.
 CA ss1014A, 1014E.
 CA s1017B.
 CA s1017D.
 CA s1013C(2).
 CA s1013D.
 CA s1013E.
 CA s1013F.
 This includes superannuation products, managed investment products and investment life insurance products: CA s1013D(2A).
 The regulator, ASIC, is specifically empowered to develop guidelines regarding such standards and considerations: CA s1013DA. See also ASIC, ASIC, Socially Responsible Investing Disclosure Guidelines? ASIC Discussion Paper (19 December 2002): <http://www.asic.gov.au/asic/pdflib.nsf/LookupByFileName/social_resp_discussion.pdf/$file/social_resp_discussion.pdf> (22 February 2006); ASIC, Disclosure about Labour Standards and Environmental, Social and Ethical Considerations in Product Disclosure Statements (PDS): Draft ASIC s1013DA Guidelines for Product Issuers (3 September 2003): <http://www.asic.gov.au/asic/pdflib.nsf/LookupByFileName/s1013DA_draft_guidelines.pdf/$file/s1013DA_draft_guidelines.pdf> (22 February 2006). These guidelines self-consciously take a non-prescriptive, principles-based approach and will be reviewed in about March 2006. See also the self-regulatory approach in IFSA Guidance Note 16 (Socially Responsible Investment Disclosure) has been removed from the IFSA website. IFSA advises consumers to instead consult the ASIC Guidelines on Socially Responsible Investment Disclosure, released 17 December 2003. See further Julian Donnan, ‘Regulating Ethical Investment: Disclosure Under the Financial Services Reform Act’ (2002) 13 JBFLP 155.
 CA regulations 7.9.14C(c)(i), 7.9.14C(d)(i).
 CA s946A(2). See also: ASIC, above n128.
 CA ss766A(1)(a); 766B(1), (3), (4). General advice is not required to be accompanied by an SOA, but the advisee must be warned that personal circumstances have not been taken into account: CA s949A.; see also ASIC, Repetition of the General Advice Warning: ASIC Consultation Paper (31 August 2005): <http://www.asic.gov.au/asic/pdflib.nsf/LookupByFileName/Repetition_general_advice_warning_CP.pdf/$file/Repetition_general_advice_warning_CP.pdf> (22 February 2006).
 CA s766B(9). There are other exemptions, such as legal advice and advice given by a registered tax agent: CA s766B(5).
 CA s766B(3).
 CA s945A.
 CA s947B(3).
 CA ss947B(1)(b); 947C(1)(b).
 CA s945B; 947B(2)(f).
 CA s947B(2)(e).
 CA ss947B(2); 947C(2).
 CA s947D.
 There is an exception for time-critical advice where the SOA must be given within five days: CA s946C(3).
 CA s946C(2).
 CA s946B. Traveller’s cheques are also included.
 Christopher Pearce, Parliamentary Secretary to the Treasurer quoted in N Milne, presentation in ‘Regulation: Negotiating the Minefield’ Clayton Utz, Risky Business VIII 8 March 2005 available at <http://www.claytonutz.com/riskybusiness/papers.htm> .
 Joyce Moullakis, ‘ASIC Trims Financial Advice Paperwork’ Australian Financial Review (22 July 2004) at 5.
 ASIC, Information Release 04–71: ASIC Issues Guidance on PDS Disclosure (21 December 2004).
 ASIC, ‘Statements of Additional Advice’, Class Order 1556 of 2004 [CO04/1556]. This replaces the earlier 04/0576 which is revoked. See also ASIC, Information Release 04–034: ASIC Facilitates Shorter Statements of Advice (21 July 2004); ASIC, Media Release 04–236: ASIC Provides Further Guidance on Statements of Advice (21 July 2004).
 Alison Kahler, ‘FSR Compliance Cost Crippling: Industry’ Australian Financial Review (11 March 2005).
 Kahler, above n159.
 Insurance Council of Australia Ltd, Submission in Response to the Proposals Paper – Review of the Insurance Contracts Act 1984 (18 June 2004): <http://www.ica.com.au/general/issueslist.nsf/0/dfe0b4cd08098001ca256edf000f1e93/$FILE/Insurance%20Contracts%20Act%2018.06.04.pdf> (22 February 2006).
 Treasury, above n114. The thrust of the proposals is to make the disclosure documents more relevant to the needs of the particular consumer and to overcome duplication of information.
 ASIC, Example Statement of Advice (SOA) for a Limited Financial Advice Scenario for a New Client: An ASIC Guide (31 August 2005): <http://www.asic.gov.au/asic/pdflib.nsf/LookupBy FileName/Example_SOA_guide.pdf/$file/Example_SOA_guide.pdf> (22 February 2006).
 The amendments reduce the length of FSGs, reduce the frequency with which SOAs must be given, allow the option of shortform PDSs and exempt basic deposit products such as savings from the PDS requirement. See Explanatory Statement Select Legilative Instrument 2005 No 324; Corporations Amendment Regulations 2005 (No 5) Schedule 10BA.
 Ian Ramsay, Disclosure of Fees and Charges in Managed Investments: Review of Current Australian Requirements and Options for Reform: Report to the Australian Securities and Investments Commission (2002) (hereafter Ramsay Report): <http://www.asic.gov.au/asic/pdflib.nsf/LookupByFileName/ramsay_report.pdf/$file/ramsay_report.pdf> (22 February 2006).
 Id at 194.
 ASIC: A Model for Fee Disclosure in Product Disclosure Statements for Investment Products: An ASIC Report (5 August 2003): <http://www.asic.gov.au/asic/pdflib.nsf/LookupByFile Name/Fees_disclosure_report.pdf/$file/Fees_disclosure_report.pdf> (22 February 2006). The issue of a single bottom-line fee figure was contested by two industry bodies. The Association of Superannuation Funds of Australia Ltd (ASFA) supported it as essential for comparability and for consumers to understand how fees would affect their superannuation in the long run. ASFA urged that examples of the impact of fees over five, 10 and even 30 years should be disclosed. The Investment and Financial Services Association Ltd was less sanguine. It was concerned with incorporating contingent fees as part of a single fee, and with disclosure of exit and penalty fees. See ‘Stumble at last hurdle to super freedom of choice’ The Gold Coast Bulletin (21 June 2004); Jason Spits, ‘Government seeks fee disclosure resolution from associations’ Money Management (25 March 2004).
 ASIC, Our Fee Disclosure Model, 16 June 2004: <http://www.asic.gov.au/asic/asic.nsf/lkuppdf/ASIC+PDFW?opendocument & key=revised_fees_model_pdf> (22 February 2006) at 3, 5–6. The ‘Type of Fee or Cost’ is categorised as ‘Fees when your money moves in or out of the fund’ which are sub-categorised as establishment fee, contribution fee, withdrawal fee and termination fee; ‘Management Costs’ which are sub-categorised as ‘Administration costs’ and ‘Investment costs’, and ‘Additional Service Fees’ which are broken down into ‘Switching fee’ and ‘Adviser service fee’. Each of these is described and in an adjacent column there is a box to enter the ‘Amount’ of each fee which can be entered as an option to pay contribution fees upfront or and option to pay contribution fees later. It is suggested that the way in which fees may be paid in the ‘How and When’ box could be monthly deductions from the member’s investment balance, deductions from contributions or withdrawals, or annual payment before returns are credited to the member’s account balance.
 Id at 6–9.
 Ross Cameron, Parliamentary Secretary to the Treasurer, Press Release No 018: ‘Simple Disclosure of Superannuation Fees and Charges’ (16 June 2004): <http://www.treasurer.gov.au/rac/content/pressreleases/2004/018.asp?pf=1> (22 February 2006).
 For Statements of Advice, see CA ss947B(2)(h), 947C(2)(i), 947D(2)(d) and regulations 7.7.10A–7.7.13B. For Product Disclosure Statements, see CA s1013D(1)(m) and regulations 7.9.15A–7.9.15C.
 On the meaning of an ‘unreasonable burden’, see Incat Australia Pty Ltd v Australian Securities and Investments Commission  FCA 58; (2000) 33 ACSR 462 at 465 per Heerey J. See also ASIC, Dollar Disclosure: ASIC Policy Proposal (10 August 2004): <http://www.asic.gov.au/asic/pdflib.nsf/LookupByFileName/Dollar_disclosure_PPP.pdf/$file/Dollar_disclosure_PPP.pdf> (22 February 2006); ASIC, Policy Statement 182: Dollar Disclosure (15 December 2004): <http://www.asic.gov.au/asic/pdflib.nsf/LookupByFileName/ps182.pdf/$file/ps182.pdf> (22 February 2006).
 To individual advisers, they include free or subsidised business equipment or services such as computers, software and industry association memberships; hospitality such as sports events tickets; adviser conferences; a higher share of commissions; ‘marketing support’ payments; shares or options in the product provider or advice licensee; and buyer of last resort agreements. To advice licensees, they include cash sponsorship of a licensee’s adviser conference; loans. To advice licensees or master trust/wrap/multi manager operators, they include fee rebate or profit sharing arrangements. See ASIC, Disclosure of Soft Dollar Benefits: An ASIC Research Report (10 June 2004): <http://www.asic.gov.au/asic/pdflib.nsf/LookupByFileName/soft$_benefits_ report.pdf/$file/soft$_benefits_report.pdf> at 11 (22 February 2006).
 Id at 28.
 CA ss942B, 942C, 947B, 947C.
 CA ss942B(3), 942C(3), 947B(3), 947C(3).
 CA ss947B(6), 947C(6).
 CA s953A.
 ASIC, Preferential Remuneration Project: An ASIC Report (7 April 2004): <http://www.asic.gov.au/asic/pdflib.nsf/LookupByFileName/Pref_remun_project_report_.pdf/$file/Pref_remun_project_report_.pdf> at 15 (22 February 2006).
 ASIC & ACA, above n27.
 Id at 22.
 ASIC, above n180 at 6.
 Tracy Lee, ‘Planners Admit to Bad Apples’ Australian Financial Review (29 April 2005).
 The Investment and Financial Services Association and the Financial Planning Association Industry Code of Practice bans free travel and accommodation for conferences geared to generating sales; free computer products and office accommodation and cash or gifts of more than $300. Joyce Moullakis, ‘Perks Ban Grounds Financial Advisers’ Australian Financial Review (28 July 2004) at 1. The Code does not deal with other rebates and commissions.
 Lee, above n185.
 Robert Baldwin & Martin Cave, Understanding Regulation: Theory, Strategy and Practice (1999); Stephen Breyer, ‘Typical Justifications for Regulation’ in Robert Baldwin, Colin Scott & Christopher Hood (eds), A Reader on Regulation (1998); Australian Law Reform Commission, Securing Compliance: Civil and Administrative Penalties in Australian Federal Regulation Discussion Paper 65 (2002) at 115.
 TPA s52.
 TPA s52; ASIC Act s12DA; CA s1041H.
 ASIC may approve certain codes of conduct: CA s1101A. See also: ASIC, Policy Statement 183: Approval of Financial Services Sector Codes of Conduct, 4 March 2005: <http://www.asic. gov.au/asic/pdflib.nsf/LookupByFileName/ps183.pdf/$file/ps183.pdf> (22 February 2006). There are currently seven relevant codes of practice: The General Insurance Code of Practice, for instance, has an extensive section on claims handling; the General Insurance Brokers’ Code of Practice sets out rules on disclosure, renewal and cancellation of policies, policy documentation; the Code of Banking Practice deals with disclosure of fees, changes to terms and conditions, rights of guarantors, debt collection; and the Financial Planning Association Code of Ethics and Rules of Professional Conduct deals with disclosure of fees and confidentiality. See <http://www.asic.gov.au/asic/asic_polprac.nsf/byheadline/Codes+of+ practice?openDocument> .
 Treasury, Financial System Inquiry: Discussion Paper (1996).
 See, for instance, Code of Banking Practice at para 30.1: ‘We will ensure that our advertising and promotional literature drawing attention to a banking service is not deceptive or misleading.’
 TPA ss51AA, 51AB, 51AC.
 Fraser v NRMA Holdings Ltd (1995) 55 FCR 452; (1995) 127 ALR 543.
 ASIC Act 1998 s12DA.
 TPA s51AF.
 CA s1041H; ASIC Act s12DA.
 CA s953A.
 CA ss952D, 952E, 1021D.
The person giving the defective document is not liable if ‘the person took reasonable steps to ensure that the disclosure document or statement would not be defective.’ See CA ss953B(6), 1022B(7).
 CA ss1041I, 1041L–1041S; ASIC Act ss12GNA, 12GP–12GW.
 One study found that seven in every ten advertisements for managed funds included at least one performance measure: Paul Gerrans & Sheree St Clair, Managed Fund Advertising – Progress Report (March 2002): <http://www.asic.gov.au/asic/pdflib.nsf/LookupByFileName/gerrans_ report.pdf/$file/gerrans_report.pdf> at 4 (22 February 2006). Good performance in the past is an unreliable predictor of future good performance. See David Allen Tim Brailsford, Ron Bird & Robert Faff, A Review of the Research on the Past Performance of Managed Funds: Report Prepared for the Australian Securities and Investments Commission by the Funds Management Research Centre of the Securities Industry Research Centre of the Asia Pacific (September 2002, revised June 2003): <http://www.asic.gov.au/asic/pdflib.nsf/lookupbyfilename/fmrc _report.pdf/$file/fmrc_report.pdf> at iii (22 February 2006).
 CA s1018A. There are exemptions which include news and certain reports. There is also a publisher’s defence. Note that there are separate provisions for advertising securities in CA Part 6.
 CA s1041H; ASIC Act s12DA. For two recent cases involving the advertisement of insurance and banking products, see ACCC v Commonwealth Bank of Australia  FCA 1129; (2003) 133 FCR 149; Medical Benefits Fund of Australia v Cassidy (2003) 135 FCR 1.
 ASIC Act s12DB(1)(c).
 ASIC Act s12DF(1).
 ASIC, The Use of Past Performance in Investment Advertising: ASIC Discussion Paper, 30 September 2002: <http://www.asic.gov.au/asic/pdflib.nsf/LookupByFileName/past_perf_DP. pdf/$file/past_perf_DP.pdf> at 12 (22 February 2006). Appendix 3 is a Draft Guide on the Use of Past Performance in Promotional Material. It suggests that if a promotion refers to past performance, it should include the performance over a five year period (at para 9.3); past performance material should be up to date or risk being misleading (at para 10.3); potential investors should be informed about the level of risk (at para 14.1); returns must take into account all fees (at para 12); promoters should not give disproportionate prominence to past performance (at para 7.4); and an advertisement with past performance information runs the risk of being misleading unless it clearly indicates that past performance will not necessarily be repeated (at para 8.2).
 CA s736.
 CA s992AA.
 CA s992A. See ASIC v Aboriginal Community Benefit Fund (2004) 50 AGSR 9;  FCA 963; 22 ACLC 1060. There are some exemptions if certain procedures are followed: CA s992A(3).
 ASIC, The Hawking Prohibitions: An ASIC Guide (1 September 2002, reissued 13 May 2005): <http://www.asic.gov.au/asic/pdflib.nsf/LookupByFileName/Hawking_Guide.pdf/$file/Hawking_Guide.pdf> (22 February 2006).
 CA s1019A.
 CA s1019B(3).
 CA s1019B(5).
 On the philosophy behind compliance, see n60 above. Financial service licensees must have compliance arrangements: CA ss912A(c), (ca),(h); regulation 7.6.03(g). The degree of compliance is already an issue. In a review of PDSs, ASIC found insufficient disclosure of risk, cooling-off periods and dispute resolution, unsubstantiated financial projections, comparisons with unlike investments, and absence of socially responsible investment disclosure. See ASIC, Attachment to Information Release 04–71: ASIC Issues Guidance on PDS Disclosure (21 December 2004).
 Managed Investments Act 1998 (Cth).
 The public profile of individual regulators such as Pauline Vamos of ASIC was important at this time.
 Joseph Hockey, Commonwealth, House of Representatives, Parliamentary Debates (Hansard), 5 April 2001 at 26521 (Second Reading Speech accompanying the Financial Services Reform Bill 2001 (Cth)).
 Financial Sector Advisory Council, above n37 at 13.
 In March 2004, when the FSRA came into effect, it was estimated that the major banks had already spent at least $100 million in compliance: Jemima Whyte, ‘Compliance Costs Top $100m’ Australian Financial Review (10 March 2004) at 49.
 Alison Kahler, ‘FSR compliance cost crippling: industry’ Australian Financial Review (11 March 2005) at 71.
 Ross Kelly, ‘Dealers Blame FSR for Fall in Numbers’ Money Management (1 March 2005).
 Association of Superannuation Funds of Australia Ltd, Submission to the Financial Sector Advisory Committee on Practical Implementation and Options for Improvement under Financial Services Reform Act (FSRA) (14 July 2004): <http://www.asfa.asn.au/policy/sub0407_FSAC-FSR.pdf> (22 February 2006).
 ALRC, above n188 at 132.
 See, for example, Ross Cranston, Regulating Business: Law and Consumer Agencies (1979).
 See this theory disproved in Paul Quirk, Industry Influence in Federal Regulatory Agencies (1981).
 Ian Ayres & John Braithwaite, Responsive Regulation: Transcending the Deregulation Debate (1992).
 See Keith Hawkins & John Thomas (eds), Enforcing Regulation (1984).
 Cento Veljanovski, ‘The Economics of Regulatory Enforcement’ in Hawkins & Thomas (eds), ibid.
 Veljanovski, id at 172; Neil Gunningham, ‘Negotiated Non-Compliance: A Case Study of Regulatory Failure’ (1987) 9 Law and Policy 69.
 Robert Kagan & John Scholz, ‘The “Criminology of the Corporation” and Regulatory Enforcement Strategies’ in Hawkins & Thomas (eds), above n229.
 Veljanovski, above n230.
 See, for instance, Lauren Edelman, Stephen Petterson, Elizabeth Chambliss & Howard Erlanger, ‘Legal Ambiguity and the Politics of Compliance: Affirmative Action Officers Dilemma’ (1991) 13 Law and Policy 73.
 Ayres & Braithwaite, above n228.
 TPA s87B.
 See Parker, ‘The Emergence of the Australian Compliance Industry’ above n60; Christine Parker, ‘Compliance Professionalism and Regulatory Community: The Australian Trade Practices Regime’ (1999) 26 (2) Journal of Law and Society 215 at 226; Carroll & McGregor-Lowndes, above n60; Parker & Conolly, above n60.
 Yeung, above n6.
 Black, Mapping the Contours of Contemporary Financial Services Regulation, above n50; Julia Black, ‘Constitutionalising Self-Regulation’ (1996) 59 Mod LR 24; Julia Black, ‘Which Arrow? Rule Type and Regulatory Policy’  Public Law 94; Julia Black, ‘Talking About Regulation’  Public Law 77; Julia Black, Rules and Regulators (1997) at 107, 133.
 Julia Black, ‘Constitutionalising Self-Regulation’, ibid at 29; Julia Black, Mapping the Contours of Contemporary Financial Services Regulation, ibid. See also Hood, ‘The Risk Game and the Blame Game’, above n9, who says that having consumers on panels is part of risk shifting from politicians. Compare this with the view that such participation encourages ethical behaviour and citizenship: Bridget Hutter & Joan O’Mahony, The Role of Civil Society Organisations in Regulating Business: Discussion Paper No 26 (2004).
 Kagan & Scholz, above n232 at 76.
 Susan Silbey, ‘The Consequences of Responsive Regulation’ in Hawkins & Thomas, above n229.
 Most OECD countries have social security levies and government or employer funded pensions. Australia does not have a social security levy.
 Heather Ridout, ‘Joint Control of Super Funds’ Australian Financial Review (13 January 2006).
 Parker, ‘Compliance Professionalism, above n237 at 219; Power, above n7 at 256, 262.