Standard 3 of the Code of Ethics goes beyond the Corporations Act’s treatment of conflicts and should take precedence for financial advisers trying to understand whether to manage or avoid conflicts of interest according to Simon Longstaff, executive director at The Ethics Centre.
Speaking at the Professional Planner Digital Licensee Summit in Sydney recently in his capacity at the Ethics Centre – and not in his role as a board member at the FASEA, the government mandated body that formulated the Code – Longstaff addressed the contradictory relationship between the Code, which exhorts advisers to avoid conflicts of interest, and the Corporations Act, which says conflicts must be managed.
“Corporations law… talks about the fact that if there is a conflict of interest and this is how you go about managing it, but of course what the FASEA code says is that you cannot have a conflict of interest,” Longstaff explained. “Therefore, whilst the Corps’ Act says ‘this is what you do if there is one’, this extends the law and in that sense it makes that element inoperative to the extent that it applies to financial advisers.”
The confirmation that the Code sits above the law in its treatment of conflicts settles one of the major bones of contention the industry has had with the Code of Ethics, which Longstaff made clear should not be underestimated in terms of the strength with which it is wielded.
“I think people often fail to realise that the Code of Ethics is itself a piece of legislation, a legislative instrument that has the force of law,” he said.
Longstaff reminded the audience of licensees, advisers and business leaders that the whole point of having a standalone Code of Ethics was to go beyond the existing set of laws that gave rise to the need for a Code in the first place.
“The Code’s got be understood within the broad context with which it was brought into existence,” he said. “Firstly, the explanatory memorandum giving rise to this whole scheme made clear it was intended that the Code of Ethics go beyond existing law to address what was seen as a shortfall.”
A fairness lens on complaints
Longstaff was joined on the panel via video link by Shail Singh, Ombudsman for investments and advice at the Australian Financial Complaints Authority, who gave insight into AFCA’s own priorities in dealing with disputes that depend on multiple sources of truth.
“We look through a fairness lens, primarily,” Singh revealed. “Under our rule A14.2 we’re required to do what’s fair, but we’re also required to [heed] the law, codes of practice and previous AFCA decisions. Obviously, the Code of Ethics feeds into that.”
AFCA’s rule A14.2 states that decision-makers must do what is fair with regards to legal principals, applicable industry codes or guidance, good industry practice and previous determinations.
“Essentially the requirement of what we do is to act fair,” Singh said.