Article - Codes of Conduct fall into place (August 1999)

(Parts of this article also appeared in the Australian Financial Review)

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After a slow start, Australia has finally emerged to take a leadership position in electronic commerce consumer protection issues. Australia’s combination of voluntary industry codes, like the Smart Card Code and the Internet Industry Association Code, plus a range of regulatory reforms should help to boost consumer confidence in smart cards and online financial services.

The smart card code helped lead the way, and there are lessons here for other new technologies. The special capabilities of smart cards - their ability to store and process data and their ability to store electronic value - have raised special privacy and consumer issues. Fears about the potential misuse of personal information and the potential for smart card systems to develop into de facto ID systems have held up consumer acceptance of smart cards.

The industry was initially slow to respond to these issues or to take consumer fears seriously. However, in recent years industry has worked closely with consumer organisations to develop a Code of Conduct which tackles privacy and consumer issues. The Code is voluntary and is fairly ‘light touch’ by consumer standards, but it has achieved the initial aim of establishing minimum standards for industry, and opening up a dialogue between industry and consumers. The Code is also a sign of good will on behalf of those companies who have signed it, including Telstra which is the major user of smart cards in Australia today.

The Code is a world first and has attracted considerable international attention. The Code was the subject of close analysis at September’s International Privacy Commissioner’s Conference and similar Codes may be adopted in countries where smart cards are struggling to win consumer confidence.

Smart cards serve as a good example for other new financial services technologies. Internet banking and even telephone banking currently take place in an unregulated environment. It has always seemed odd that consumers are protected when using EFTPOS or an ATM, but are left out in the cold when using Internet or telephone banking.

In the absence of an appropriate law or code of conduct, consumers must rely on the terms and conditions offered by the individual banks. These are not always easy to find, and when you do track them down each of the big four banks takes steps to exclude themselves from any liability for damages caused by system failure. One bank which requires users to download software on to their personal computer even attempts to exclude itself from liability for any damage which the software might cause to your computer files or hardware.

Boosting consumer confidence is the key to the successful introduction of new technologies, so it is surprising that little has been done by the financial services industry to expand consumer protection and privacy protection in relation to online financial services. It would be a shame if the smart card code was a ‘one off’ effort.

Fortunately, Australia’s regulators have decided not to wait for industry to take the lead, and have begun development of three new initiatives to tackle consumer issues online.

The Australian Securities and Investments Commission has established a working party to rewrite and expand the Electronic Funds Transfer Code of Conduct so that it applies to a wider range of electronic transactions, including Internet banking, telephone banking and online shopping. The original Code was notable for its comprehensive consumer protection rules, but was severely hampered by its limited coverage. It only applied to magnetic strip cards linked to an account and accessed by a PIN. The new code will be technology neutral. See

The Consumer Affairs Division of Treasury has also begun work on a Model Code on Consumer Protection in Electronic Commerce. This Code will help Australian business implement consumer protection standards being developed by the OECD for all aspects of electronic commerce. See

Finally, the Attorney General’s Department has developed a new Electronic Transactions Law that regulates the formation of contracts via electronic means. This law should enable a new legal regime based on electronic authentication and digital signatures to develop.

These developments might seem fairly ad hoc, but finally the jigsaw pieces which make up Australia’s consumer protection regime for new technology financial services are falling into place. The new EFT Code will cover the payments system. The Model Code will cover industry conduct. And the Electronic Transactions Act will cover the transaction itself.

Additional industry codes, for difficult areas like smart cards and the Internet round off the picture.

It remains a mystery how we got here. The history of this issue is actually a story of myriad industry groups, government departments and regulators all seemingly pulling in different directions. Somehow it has all fallen into place, and consumers will soon be able to approach the online world with confidence. Confidence in the new technologies should translate into a rare win-win situation for both business and consumers.

Chris Connolly

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