The Taskforce is to inquire into and report on the types of self-regulation in use in consumer markets in Australia.
Within the scope of self-regulation there is a host of options to deal with specific problems and objectives ranging from a simple code of ethics, to schemes incorporating codes that are drafted with legislative precision together with sophisticated customer dispute resolution mechanisms. The various forms of self-regulation at the national level also cover a broad range of industries, including:
- broadcasting and the media;
- direct marketing;
- financial services sector;
- general industry schemes;
- pharmaceuticals and proprietary medicines;
- professional associations;
- retail sector schemes; and
This chapter gives a snapshot of the reasons for, and types of, self-regulation. For further detail on the types of self-regulation, see the directory of self-regulatory schemes at the national level in consumer markets.15
1. There is a broad and diverse range of self-regulation at the national level affecting consumers.
2. There is no single model for industry self-regulation as it depends on what is trying to be achieved.
Reasons for self-regulation
The Taskforce has found that the factors behind self-regulatory schemes range from marketing exercises to legislative requirements. The following section discusses these factors.
Raising industry standards
A common reason for self-regulation, often in conjunction with other reasons, is the desire to raise industry standards. Self-regulation is a means to exceed minimum legal requirements and can also enhance understanding and compliance with regulations. In a competitive environment there is a strong incentive for businesses to continually improve standards and exceed the benchmark service levels in order to gain market share. Various forms of self-regulation can set a benchmark for minimum service levels, and allow businesses flexibility in how these services are to be met and exceeded. For example, the Association of Superannuation Funds of Australia has produced best practice papers on appointment of policy committees, member booklets and annual report checklists.16
Raising industry standards often refers to the ability to deal with rogue players or poor reputation. The role of reputation can be very important to a business, particularly when the business is operating in a competitive environment. For example, the financial services industry is very competitive and values customer loyalty. One reason as to why the Financial Industry Complaints Scheme was established was the emphasis the industry placed on measures for customer retention and customer satisfaction.17
Using self-regulation as a marketing tool is another reason why self-regulation has been developed by industry. Membership of a recognised form of self-regulation (e.g. code of conduct) can often constitute an important selling point for businesses to attract new customers, and may increase the bargaining power of the business when entering new arrangements with other parties. Also, businesses can advertise the fact that they are in a self-regulatory scheme as a means of product differentiation. For example, the Australian Direct Marketing Association Code enables consumers to differentiate between marketplace players.18
Similarly, in the grains industry, since most of Australia's grain production is exported, one of the means of achieving an edge for Australian grain in the competitive world market is to stress its high quality. Under the new privatised arrangements, the Australian Wheat Board Ltd sets the standards which growers must meet.19
Enhancing the level of information
Increasing the level of information on products and services is a further reason for self-regulation. By enhancing information flows, businesses can boost consumer confidence in products. The Code of Conduct for the Provision of Information on Food Products was introduced to complement regulations and increase consumer knowledge. It provides a degree of consistency in food companies' approaches to labelling and the use of terms to describe food products, thereby providing a greater degree of certainty and confidence to consumers about the nature of the products they are purchasing.20
Self-regulation is also a means of building consumer confidence when introducing new technology to the industry. For example, the Australian Code of Practice for Computerised Checkout Systems in Supermarkets.21
Threat of government regulation
The actual or perceived `threat' of government regulation, or a `push' by government because of poor industry practices was found to be a further reason for industry to self-regulate. For example, the Code of Banking Practice was primarily developed by a committee of officials and implemented by Australian banks.22
Self-regulation may have also been imposed via legislative requirements. For example, in the telecommunications industry, Part 6 of the Telecommunications Act 1997 establishes a scheme of industry codes and industry standards.23 Also, the Act provides for the Telecommunications Industry Ombudsman Scheme which is an independent alternative dispute resolution scheme. Membership of this scheme is a legislative requirement of all carriers and eligible carriage service providers.
Similarly, under section 123 of the Broadcasting Services Act 1992, commercial broadcasting licensees are now required to develop codes of practice in consultation with the Australian Broadcasting Authority.24
Combination of factors
The Taskforce recognises that often there will be a number of reasons to self-regulate. For instance, schemes may have been formed in part due to the threat of government regulation. However, there were probably good reasons why government was threatening to regulate in the first place such as the need to raise industry standards or to increase information flows. For example, the Australian Competition and Consumer Commission (ACCC) assisted the film industry to develop a code to avoid problems in the industry.
Self-regulatory options available to industry
Industry has an array of self-regulatory options available to address specific problems and objectives. These options can range from a simple information campaign to a complex dispute resolution scheme. In addition, there is a spectrum within each type of self-regulatory option.
At the lower end of the self-regulatory spectrum are information campaigns. As part of increasing the flow of information, the Taskforce has found that education of both industry members and the consumer is important. For example, the Australian Cold Chain Guidelines seek to strengthen the cold chain by recommending practices for each link, from the manufacturer to consumer to ensure the safety and quality of frozen and chilled foods.25
Also, as discussed elsewhere, self-regulation plays an important role in complementing regulation. For example, the Responsible Serving of Alcohol Program complements the liquor licensing laws. Business and Professional Women of Australia commented that it is in businesses' own interest to support the program as server
s of alcohol can be charged for possible manslaughter when serving alcohol to drunken people.26 Similarly, Coatings Care is a voluntary program which companies that deal with paints and coatings may follow to meet regulatory requirements in a manner complementary to their operations. The Department of Industry, Science and Resources submitted that the program assists companies to comply with the diverse requirements for protecting worker health, safety and the environment.27
Related to information campaigns, a service charter is a simple and short plain-language document which sets out the quality of service standards customers can expect to receive from that organisation. As discussed in the ACCC's submission, the move for service charters started in the United Kingdom in the early 1990s, but they are becoming increasingly popular in other countries.28 In Australia, the Commonwealth Government and some State and local governments are implementing charters. Private companies are also starting to follow suit. For example, the AAMI insurance company has recently produced a service charter which sets out some clearly defined rights for its customers.29
Internal complaints handling departments and procedures
Another form of self-regulation is the use of internal complaints handling departments and procedures. Companies are increasingly looking at ways to gain a competitive edge over their rivals in the marketplace. In particular, bigger companies have an advantage in this area by virtue of their size. Many companies are now internalising consumer protection by establishing corporate consumer affairs departments. For example, the NRMA has a Customer Relations unit that provides services for customers such as interpreters and conference call facilities.30
A further development has been the use of internal complaints handling systems. For example, the Insurance Council of Australia pointed to the General Insurance Code of Practice establishing internal dispute arrangements within each insurer.31 Generally, before a complaint goes to an external disputes scheme, businesses will try and solve it internally as a first port of call. Standards Australia, which is a non-government body, has also developed a Standard on Complaints Handling (AS4269).32
In addition, companies have established their own internal/company-based compliance systems. Standards Australia has recently released an Australian standard on Compliance Programs (AS3806).33 This standard proposes requirements and recommendations for the development, implementation and maintenance of a compliance system that can assist an organisation in its compliance with the law.
Accreditation, licensing and membership certification
Accreditation, licensing and membership certifications are a means to create consumer confidence in the level of professionalism and technical competence of members of industry and professional associations. It also serves to set standards within an industry or profession. For example, the accounting profession requires prospective members to complete professional accreditation programs prior to being admitted as either a certified practising accountant or chartered accountant.34
Quality assurance systems
Quality assurance systems (QAS) are another form self-regulation that aim to enhance the quality of a good or service. For example, the increasing adoption of QAS reflects the widespread recognition of the emerging role quality management is playing in world agrifood markets. In the meat and livestock industry, Flockcare is an on-farm QAS introduced by the Sheepmeat Council of Australia to provide a systematic way to ensure producers supply a safe, consistent product while reducing waste and on-farm costs.35
Another common type of self-regulation is the use of standards. Many standards are developed to provide a demonstration that certain technical requirements are being met. For example, there are standards in engineering that need to be met before a professional engineer is registered. These standards of competency are measured against a benchmark at the time of first registration and are required to be progressively enhanced through continuing professional development.36
Australian standards are consensus-based voluntary documents with which compliance is non-mandatory unless incorporated into law or called up in contractual documents. For example, Standards Australia has published four toy safety standards (AS1647 series) which apply to the construction of toys so that the risk of ingestion for children less than three years of age is reduced.37 Presently, only one of these standards for small parts has been declared mandatory.
Codes and dispute resolution schemes
By far the most common form of self-regulation is codes of conduct or codes of ethics that are usually built around membership of a professional or industry association. Codes can range from setting out general statements of principle about how an industry or business will operate, to listing specific business practices which are guaranteed. They can either contain minimum standards or standards, which are, aimed at best practice.
Institutional and functional codes
Codes can also be institutional or functional in their nature. Most codes are institutionally based - that is, codes are industry based. As discussed in chapter 5 - industry environment and market circumstances where self-regulation is likely to be most effective, a major contributing factor to an effective code of conduct is the strength of industry support. However, some products/services can exist across different sectors and industries. Hence a functional self-regulatory scheme covers products/services that span more than one industry. An example of a functional code is the Australian Direct Marketing Association (ADMA) Code. ADMA represents over 400 organisations involved in information-based marketing including financial institutions, publishers, catalogue and mail order traders, Internet-based marketers and service providers, airlines and travel services, telecommunications service providers, and a host of other users and suppliers of direct marketing services.38
Codes can also differ in other respects, including whether or not they provide a method of dispute resolution depending on the nature of the specific problems trying to be addressed. For example, the National Code for the Safe Production of Enzymatic Detergents allows the manufacture of enzymatic detergents in Australia. Following the production requirements of the code, manufacturers monitor their workplaces using the analytical procedures it specifies to ensure that employees are not exposed to enzyme dust.39 Whereas, there are a number codes that have an accompanying alternate dispute resolution (ADR) scheme. Some of the biggest ADR schemes are the Australian Banking Industry Ombudsman, the Telecommunications Industry Ombudsman, and the General Insurance Enquiries and Complaints Scheme.
Codes may also differ in their level of sanctions for non-compliance. The Jewellery and Timepieces Industry Code lists the types of remedial action that can apply when the code is breached such as withdrawal of, or corrective advertising, writing to consumers, offering consumers a refund, offering alternative merchandise or offering a raincheck.40
In addition, compliance by industry with a code of conduct can be mandatory or voluntary. For example, section 113 of the Insurance Act 1973 makes it mandatory for general insurers of certain types of policies to be members of the General Insurance Code of Practice.41 In contrast, the advertising self-regulatory scheme is voluntary in its nature and participants do not have to abide by the Advertising Board's determinations.42
In effect, there is a spectrum of different codes within the codes framework. This re-iterates the Taskforce's finding that there is no one model for self-regulation.
15 The directory of self-regulatory schemes can be found at the Taskforce's website: http://www.treasury.gov.au/self-regtaskforce.
16 Submission number 22, p. 6.
17 Submission number 15, p. 2.
18 Submission number 36, p. 11.
19 Submission number 28, p. 5.
20 Submission number 30, p. 15.
21 Submission number 11, p. 2.
22 Grey-letter Law: Report of the Commonwealth Interdepartmental Committee on Quasi-regulation, 1997, p. XIII.
23 Submission number 17, p. 1.
24 Submission number 35, p. 5.
25 Submission number 30, p. 16.
26 Taskforce consultation with Business and Professional Women of Australia, Melbourne, 22 November 1999.
27 Submission number 31, pp. 11-12.
28 Submission number 42, p. 31.
29 Taskforce consultation with the Society of Consumer Affairs Professionals in Business, Canberra, 7 December 1999.
31 Submission number 18, p. 2.
32 Submission number 42, p. 32.
33 Submission number 42, p. 31.
34 Submission number 33, p. 2.
35 Submission number 28, p. 2.
36 Submission number 26, p. 17.
37 Submission number 23, p. 2.
38 Submission number 36, p. 2.
39 Submission number 27, p. 9.
40 Taskforce consultation with the Jewellers Association of Australia, Canberra, 7 December 1999.
41 Submission number 18, p. 6.
42 Submission number 12, p. 2.
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Next: Chapter 4: Gaps and overlaps in the coverage of self-regulation