One of the most important lessons to come out of last week’s banking royal commission is one of the least likely to grab attention, certainly not in the way the resignation of NAB chair Ken Henry did.
It’s that, in the view of Royal Commissioner Kenneth Hayne, when all is said and done the complex patchwork of rules that regulate financial institutions can be boiled down to six simple requirements:
obey the law
do not mislead or deceive
provide services that are fit for purpose
deliver services with reasonable care and skill, and
when acting for another, act in their best interests
Yet, under our current law, these six principles are expressed in different terms in multiple pieces of legislation that run to thousands of pages and even more regulations, at both state and federal levels.
The labyrinth is arguably unnavigable for even sophisticated parties with access to good legal advice.
It wholly fails as a way of communicating the law to ordinary people, the businesses and citizens who are bank customers. It also provides an endless supply of “stall and evade” opportunities for wrongdoers who can clog up the courts with technical and strategic debates over how to interpret the labyrinth.
Even the best-intentioned plaintiff or prosecutor can end up pleading every possible permutation of the law to try and cover all bases.
The inevitable result is to “delay the proceeding and increase legal expenses”, in the words of a recent Federal Court judgement.
Take the core prohibition of “misleading or deceptive” conduct.
Research conducted at Melbourne Law School finds the same prohibition in slightly different forms, with different requirements, different defences, and different remedies and penalties in more than 30 pieces of state and federal legislation.
The result has been described by another Federal Court judge as a “legislative porridge”.
For many Australians it makes the use of the courts to resolve financial disputes with banks and insurance companies simply not possible.
As a result, we have developed a parallel “soft law”, that doesn’t work badly.
The Authority’s guiding principle is as simple as could be – that its decision be fair in all the circumstances.
Authors: Elise Bant, Professor of Law, University of Melbourne