Providing Financial Services 'Efficiently, Honestly and Fairly'

Abstract

Australia's national securities commission - the Australian Securities and Investments Commission (ASIC) - sees the stockbroker's or investment adviser's obligation to act efficiently, honestly and fairly in s 912A(1)(a) of Australia's Corporations Act as both a stand-alone obligation that a broker or adviser (an Australian Financial Services (AFS) licensee) must satisfy, and an obligation that encompasses other obligations under their AFS license. A licensee may be in breach of its statutory obligation to provide services efficiently, honestly and fairly even if it is complying with all of its other specified obligations. This general obligation includes personal competencies, and imposes continuing obligations on the licensee and its representatives when providing financial services from the beginning of the relationship to its end. Included in the licensee's obligations are its duties as an employer to its employees, even if intermingled with other obligations regarding financial services. The obligation of acting efficiently, honestly and fairly parallels legal action under other sections in the Corporations Act. The importance of the test is that it triggers ASIC's administrative procedure of suspending, canceling or banning an offender for breach of the obligation to act efficiently, honesty and fairly. This can present potential problems because it allows ASIC to bypass specific provisions in the Corporations Act, avoid the decision whether to pursue civil or criminal proceedings, avoid briefing prosecutors and allows it to deal with the matter by means of the administrative process of suspending, canceling or banning a licensee for breach of the obligation to act efficiently, honestly and fairly. Even criminal activity such as false transfers, false entries, illegal trading and manipulation - which ASIC may classify as gross misconduct - can be dealt with administratively for failure to provide financial services efficiently, honestly and fairly. The test of whether financial services are provided efficiently, honestly and fairly is written in plain English. It is not encumbered with existing interpretations and its scope is not fixed, so it cannot become obsolete, and like the evolution of Trade Practices Act 1974 (Cth) s 52, the expected standard of the financial services licensee of efficiency, honesty and fairness will continue to evolve to meet new situations in the marketplace for financial services.