The Taskforce is to inquire into and report on gaps and overlaps in the coverage of self-regulation.
There has been considerable growth in the number of self-regulatory schemes across many industries. In addition, these self-regulatory schemes operate in dynamic markets, which are influenced by globalisation, increasing vertical integration, and the growth of `hybrid' products that span traditional markets or industries.
As a consequence, gaps and overlaps can emerge in the coverage of various products, services, sectors and industries. For example, a specific problem may emerge from the use of new technology in an industry and may not be covered by any form of regulation. Self-regulation is one means to overcome any specific problems associated with the new technology. Similarly, some self-regulatory schemes may have a degree of overlap where the distinction between products or services has become blurred.
This chapter looks at the broad gaps and overlaps in self-regulation in Australia.
3. Gaps and overlaps continually emerge and re-emerge in dynamic markets;
4. A `gap' in the market does not necessarily mean that self-regulation is the appropriate solution;
5. Self-regulation is a flexible response to market failure and may fill a `gap' quickly and efficiently; and
6. Some small businesses can have difficulties in joining self-regulatory schemes as can consumers.
The Taskforce considers that with increased technology and increasing merger of product lines and new products, there will always be gaps and overlaps emerging. Therefore, it is important to monitor self-regulation to ensure that it is addressing what it was designed to achieve and to assess whether it is still the most appropriate form of intervention.
The financial services industry is an example of an industry that is undergoing rapid and continuous change with new technology and new products. There is also an increasing merger of product lines. For example, some banks are now selling insurance policies under separate entities.
Similarly, in the telecommunications sector gaps and overlaps may increase as technology and discrete industries converge. Presently, separate self-regulatory arrangements currently apply to the telecommunications, Internet and broadcasting industries. The Telecommunications Industry Ombudsman stated that at the moment there are only a few and episodic instances of self-regulatory overlap, although the nature of these overlaps, driven by convergence of both technology and of previously discrete industries, suggest that they will increase.43 Similarly, the Service Providers Industry Association commented that there are daily examples where such separation is proving problematic, for example in digital television, datacasting, and Internet content.44 Cable & Wireless Optus also commented that as the technologies of these industries converge, there will be an increasing need for regulatory schemes to respond in a manner which enables industries to deliver market efficiencies.45
The Taskforce discusses the role of institutional and functional self-regulatory schemes whilst weighing up the importance of industry ownership in chapter 8 - Options that facilitate the improvement and harmonisation of dispute resolution schemes.
The markets in which businesses operate are also becoming increasingly global, with consumers trading online with merchants all over the world. In particular, Internet use has increased global competition in consumer markets. As a result, self-regulation initiatives need to take into account international as well as domestic industry participants.
The Australian Consumers' Association stated that consumers are increasingly interacting across jurisdictions and finding examples of good practice. If domestic industry is going to compete in this market it will need to match these practices.46
Similarly, the NRMA considered that with the increasingly globalised nature of many markets and the growth of e-commerce, there is a need for international harmonisation of codes.47 Clayton Utz stated that dialogue between industry bodies in Australia and in overseas markets should be actively encouraged and pursued to develop harmonious self-regulatory schemes which encourage bilateral trade and discourage protectionism where possible. Clayton Utz submitted that subscription to overseas self-regulation schemes by Australian organisations and subscription to Australian schemes by foreign organisations should also be encouraged. The development of international or multi-jurisdictional self-regulation schemes could also occur.48
The Australian Toy Association commented that any imposts or obligations on companies under self-regulatory arrangements should not disadvantage Australian companies via international competition.49 Similarly, the National Furnishing Industry Association of Australia commented that its code is becoming a burden in terms of competing against cheap imports.50 Harmonisation will help prevent Australian businesses from losing customers to overseas countries that may offer cheaper products but provide less consumer protection through industry self-regulation.
In developing and modifying self-regulatory schemes, the Taskforce considers that the impact of globalisation needs to be considered. The challenge is to implement schemes that provide choice and security for the consumer while enhancing competitiveness of Australian business.
Is self-regulation appropriate?
As discussed in chapter 2, the type of self-regulation (or any regulation) should depend on what is trying to be achieved. The following chapter (chapter 5) discusses the general market circumstances and industry environments where self-regulation may be appropriate.
Hence, a `gap' in a market where there is no form of regulation may not necessarily mean that self-regulation is the answer. In fact, no regulation, or explicit government regulation could be the minimum effective solution.
The Taskforce stresses that the specific problems and/or objectives need to be clearly specified before any type of self-regulation is considered, then the benefits and costs of ways to deal with the problem can be analysed together with consultation with effected parties.
If self-regulation is the appropriate tool to deal with specific problems and/or objectives, then the Taskforce considers that self-regulatory schemes can be very flexible and responsive and to market circumstances and a changing industry environment. For example, the Telephone Information Services Standards Council was set up by industry in response to consumer complaints about primarily `0055/1900' telephone numbers. The Council has also been modified to include new competitors such as Optus and service providers.51
Some small businesses can find it difficult, or may be unwilling, to be part of a self-regulatory scheme, perhaps because they do not perceive themselves as belonging to a particular industry segment. The Micro Business Network stated that those businesses that are not currently involved in an industry association would find it hard to regulate and many small businesses are anti-regulation from a general viewpoint.52 Similarly, the Office of Small Business suggested that it is generally accepted that small business is less able than big business to cope with the
costs of participating in a scheme such as a code of conduct, particularly when such a scheme is funded by industry levies. The Office of Small Business asserted that small businesses in many cases have no option but to pass on these costs to the consumer in the form of higher prices for goods and services. It argued that this can place small business at a competitive disadvantage to their larger counterparts.53
The Office of Small Business commented that although small businesses often have legal recourse in disputes, their access to justice can be constrained by the cost of going to court, delays before their case is heard, the disparity in the quality of representation and their need to preserve business relationships. It suggested that in many cases, neither party achieves a satisfactory result from a Court judgement.54
During its consultations, observers also noted that smaller industry players can find it difficult to influence the development and administration of self-regulatory schemes.55 Australian Business Limited also commented that some small businesses prefer the certainty of regulation.56
Self-regulatory approaches can offer small business a low-cost, quick and flexible system for resolving disputes. Self-regulation can also assist small business to understand and comply with the law.
The Taskforce discusses ways in which self-regulation can be more readily accessible to small businesses in chapter 6 - good practice and cost-effective practice in self-regulation. This discussion includes items such as the funding of schemes not placing businesses at a competitive disadvantage, a transparency of fees, and possible small business representation.
Awareness of codes
Another issue that could be loosely termed as a `gap' is that consumers may not be aware of various dispute-handling schemes. The Consumer Law Centre of Victoria, Consumer Credit Legal Service of Victoria and the Financial and Consumer Rights Council of Victoria suggested that only a small proportion of Australian consumers are empowered to be able to advocate on their own behalf within the marketplace and challenge unsatisfactory behaviour by industries.57 Further, the Law Council of Australia points out that statistics often do not take into account the reasons why and how the disputes are resolved but simply state that they are `resolved'. The Council argues that many of the disputes are resolved through consumer frustration and ultimate abandonment of complaints.58
In addition, the Consumer Redress Study (1999) identified the most and least common demographic characteristics of a typical user of a redress mechanism:59
|Age||Sex||Education Level||Employment Status||First Language||Place of Residence|
|45-54||Male||At least completed high school||Full-time||English||Metropolitan|
|35-44||Male||Some tertiary education||Full-time||English||Metropolitan|
|Age||Sex||Education Level||Employment Status||First Language||Place of Residence|
|Female||Did not complete high school||Part-time||Non-English||Remote area|
While the sample data were relatively small, and therefore generalisations from the information should be made with caution, the survey outcomes reflect the experience of the Consumer Law Centre of Victoria, Consumer Credit Legal Service of Victoria and the Financial and Consumer Rights Council of Victoria. Further, the results are echoed in data collected by the Energy Industry Ombudsman of Victoria in relation to the demographics of its complainants.60
The Taskforce considers that this stresses the importance of effective consumer access to self-regulation (see further discussion on this in chapter 6 - good practice and cost-effective self-regulation methods and approaches).
Regulatory gaps in the market
A number of organisations brought to the Taskforce's attention the existence of gaps in particular markets or industries.
The joint submission from the Consumer Law Centre of Victoria, Consumer Credit Legal Service of Victoria and the Financial and Consumer Rights Council of Victoria submitted that there are a number of gaps in markets. For example, they submitted that there are gaps in the airline industry, financial services industry, food industry and in telecommunications. They commented that there is a need for urgent and appropriate responses to maintain public faith in co-regulatory processes.61
The Australian Securities and Investments Commission (ASIC) also commented that there are gaps in the coverage of formal alternative dispute resolution schemes in the finance services industry including:
- credit (finance companies, building societies and some credit unions);62
- accountants (although accountants that provide financial advice are required to be members of an alternative dispute resolution scheme);
- real estate investments other than real estate managed investments;
- some `transaction only' activities (e.g. on-line share broking services); and
- some cross-border financial services.
However, ASIC commented that it does not believe that all these areas need immediate coverage, but rather that consideration should be given as to whether the absence of coverage by dispute resolution schemes is a reflection of a lack of market problems or because of the difficulties in establishing schemes in such areas.63
NSW Legal Aid also commented that there are gaps in consumer credit insurance policies.64
Further, the Consumer Law Centre of Victoria observed that interest rates have been very high in the pawnbroking industry, and there has been no push by the industry to set up a code of practice. The Centre commented that any self-regulatory scheme should look at the types of consumers using the service.65
The Taskforce re-iterates
that a gap in the market where there is no form of regulation may not necessarily mean that self-regulation is the most appropriate solution, or indeed that any form of regulation is required. The type of intervention (if any) will depend on the nature of the specific problem and should be the effective minimum solution.
The Taskforce believes that in the great majority of cases the nature of any consumer complaint is likely to make the appropriate code self-evident. For example, if there are concerns over an advertisement, then the consumer can complain to the Advertising Board. The Taskforce is conscious of the need for a seamless transition between and among codes for the benefit of consumers and to avoid duplication of costs. It is vital to retain the `one stop shop' approach to complaints handling. From the consumers' perspective, a multiple complaints handling environment can be inefficient, burdensome and frequently frustrating.
However, as discussed above, the growth of different products and changing technology means that there can be multiple schemes in an industry (e.g. financial services industry). For example, ASIC commented that the Financial Industry Complaints Scheme (FICS) and Financial Services Complaint Resolution Scheme had a substantial degree of overlap in the area of complaints about licensees who provide investment advice to retail investors and about responsible entities of managed investment schemes. These schemes were merged on 1 January 2000, and will now operate under the FICS banner. ASIC commented that this merger will deliver both cost savings to industry and more consistent complaints handling for consumers.66
In contrast, the Australian Direct Marketing Association suggested that overlapping codes is a strength rather than a weakness of self-regulatory systems.67 Indeed it is arguable that some degree of overlap is necessary in order for these systems to be effective since any significant number of complaints `falling between the cracks' would tend to bring the whole system into question.
Australian Business Limited disagreed with the notion that self-regulation `overlaps' in coverage across products, services, sectors or industries, suggesting that the problem stemmed from the detailed and specific nature of self-regulatory schemes. Australian Business suggested that the answer lay in the development of flexible self-regulatory schemes of general application, promoting compliance with regulatory obligations.68
As a general rule, the Taskforce considers that any significant overlap between schemes should be avoided. Further, multiple schemes in the same sector can be confusing for consumers. As pointed out by the NSW Legal Aid it has the potential for members to seek out the scheme that they perceive will be most sympathetic to them.69
The Taskforce also encourages industry groups that administer complaints handling systems to have their own networks to ensure complaints are channelled appropriately. These networks need to be constantly nurtured. For example, in the financial services industry, the General Insurance and Enquiries and Complaints scheme stated that consumers are referred between schemes where necessary. This scheme and the Financial Industry Complaints Scheme (FICS), have a direct telephone line between the services so that consumers may be transferred directly when necessary. In addition, these schemes also regularly participate in roundtable meetings with other dispute resolution scheme managers and with ASIC.70
Multiple membership of codes
A related issue to scheme overlap is that companies may be members of more than one code and disputes scheme, and for larger companies this can extend to three or four. For example a major finance company providing banking and insurance services directly to consumers may belong to the Banking Code, the General Insurance Code of Practice and the Code of the Australian Direct Marketing Association.71 Similarly, in the telecommunications industry, some industry players participate in multiple forums, such as the Australian Direct Marketing Association Code, or the Internet Industry Association Code.72
In addition to multiple schemes, there is also often a mix of self-regulatory and regulatory frameworks companies have to comply with, as well as national and State schemes.
In the financial services industry, to the extent that schemes continue to operate along sectoral or industry lines (e.g. general insurance, life insurance and managed investments, banking) the ASIC requirement to join an approved scheme means that there will be circumstances in which participants are members of more than one scheme. For example, a bank that is a member of the Australian Banking Industry Ombudsman will be required to join an approved scheme (currently Financial Industry Complaints Scheme) in respect of its retail advisory activities.
It can be confusing and costly for companies to comply with multiple schemes. However, it is important to recognise industry differences and tailor self-regulation to the circumstances of each industry. Also, there are other factors driving multiple schemes such as the dynamic nature of markets and companies delving into different products and services.
The Taskforce considers that better co-ordination of self-regulatory schemes may allay these concerns. Some approaches to coordinate self-regulation are discussed in chapter 7 - approaches to promoting and coordinating industry self-regulation, including the appropriate role of government.
59 Consumer Affairs Division, Commonwealth Department of Treasury 1999, Consumer Redress Study, released by the Minister for Financial Services and Regulation, the Hon Joe Hockey MP. This document is available on the Internet at
http://www.treasury.gov.au (choose Consumer Affairs/Publications/Industry Self-Regulation Publications).