Principles-Based Regulation – Be Careful What You Wish For


Calls for a change to ‘target a principles-based regulation framework’ put forward by Senator Jane Hume should be considered carefully and not be a knee-jerk reaction for popular support, according to Synchron’s General Manager – Compliance, Phil Osborne.

A statement from the company says that while principles-based regulation “…is the ideal destination for how we should be allowed to operate as an industry, we should regard this as a destination that will be arrived at after a bit more of a journey.”

Phil Osborne…whose principles will be applied…

Osborne says the industry needs to think of this in terms of the application – whose principles will be applied?

“Will we be allowing advisers to use their professional judgement and be guided by ethical standards, as has been promoted since the introduction of the Code of Ethics? If so, what happens when the regulator disagrees with the advice provided? Do we then have to discount the principles under which advice was actually given?”

Osborne also believes an important, often overlooked, consideration is the application of the principles of the consumer.

“How is a nuisance complaint to be treated? Under current requirements, the Ombudsman will always allow the client to decide whether to continue with the complaints process, regardless of whether there is any merit in their case,” he says.

“With no disincentive for the client, the advice community is subject to the danger of moral risk under a principles-based system.”

Though many look at the ‘safe harbour’ steps of the client Best Interests Duty as a checklist to be completed, Osborne sees these as guidelines to support an advice business.

…should these steps be removed, what will then be in place for an adviser to rely on to demonstrate they have acted in an appropriate manner…

“The concern is that should these steps be removed, what will then be in place for an adviser to rely on to demonstrate they have acted in an appropriate manner when dealing with the client?” he says.

“Let’s not forget that before the ‘Best Interests Duty’ legislation, the requirement was to have a reasonable basis for recommendation. To remove the safe harbour steps goes back to an argument as to what is reasonable or not and removes an objective measure that provides an adviser with some form of defence, as well as a benchmark by which they can be held accountable.”

As for the domination of checklists causing compliance complication and micromanagement, this is a concern with which Osborne agrees.

“Over the years, checklists that were simple and performed a valuable function have been bastardised – continually being added to and expanded to the point where we’re now seeing checklists for the checklists,” he says.

Fumbling the Opportunity

What also needs to be considered, according to Osborne, is the way in which the industry has “fumbled its opportunity” to apply principles-based regulation via the Code of Ethics introduced in January 2020.

“The fact that it took the industry two years to understand that a concern for conflict of interest didn’t actually mean referral payments were banned under Standard 3 doesn’t bode well for how regulation on a principles-basis would actually be applied,” he says.

While he supports the evolution of the industry over time to a principles-based regulatory regime, he believes the industry right now ultimately needs to step back and assess exactly what the legislation that is in place actually requires.

“The legislation we have now is not that prescriptive or onerous. With the ability to interpret what is there, it already provides us with what many are seeking from principles-based regulation. Let’s get used to working with the Code of Ethics in conjunction with the spirit of the current legislation before we go changing anything,” he adds.


  1. 1,495 years ago, Justinian the Byzantine Emperor found Roman Law so complex that no-one understood it.

    He decided that the only way to escape the maze, was to repeal 90% of the laws and have the simplified Laws to abide by 4 principles.
    1) All citizens had the right to equal treatment under the Law.
    2) A person was considered innocent until proven guilty.
    3) The burden of proof rested with the accuser rather than the accused.
    4) Any Law that seemed unreasonable or grossly unfair, could be set aside.

    This was achieved in less than 2 years.

    Justinian understood that the only way a country and all it’s citizens could progress, was to have a Legal system where people knew what was right or wrong and if there was inequity, the 4 overriding principles would apply.

    This is NOT where all Australians are at today.

    What we have is total confusion, where Regulators and Lawyers seems to have their own opinion on Legal interpretation, though the world they live in is a Utopian bubble where they continue to be paid high salaries for opinions that carry little weight and less protection for the rest of us who rely on them to decode words that even they find opaque.

    As Phil Osborne quite rightly points out, all the Principles based Regulations could do is open up more cracks, though the good news is, that the Legal eagles will be abled to charge more money trying to interpret and the Regulators jobs will be secure by throwing their own interpretations into the mix.

    Does Australia or the world, have a Justinian? The answer is yes, there are many Justinian’s, though the red tape brigade, have, over the last 1,490 years, been successfully infiltrating corridors of power to make sure there is no repeat of such a ghastly thing that Justinian did, which was to reduce the need for more Lawyers and Public servants.

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