The Place of Codes of Conduct in Regulating Financial Services

Abstract

Codes of conduct in financial services regulation are used to draw industry into the regulatory system. This enrolment presupposes a consonance between regulatory objectives and the industry bodies. This historical examination of the evolution of particular codes suggests that this is not always so. Further, by maintaining a code of conduct, industry can retain a certain degree of autonomy and regulators can shift regulatory risk to industry. Yet by supporting a system of codes of conduct dealing with relations with consumers of financial services, industry is also ‘responsibilised’ in its contact with consumers. This article traces the legislative and regulatory approaches to financial services codes of practice as a form of self-regulation and an aspiration for best practice. It examines the safeguards built into the approvals process to ensure that these self-regulatory rules are effective and that consumers can trust the code system. And it suggests ‘light-handedly’ that we should be aware of arguments for a retreat from ‘direct’ regulation to codes.