Sales & Marketing

20 Jul 2009

"It takes 20 years to build reputation and 5 minutes to ruin it..."

"It takes 20 years to build reputation and 5 minutes to ruin it... if you think about that, you'll do things differently" (Warren Buffett).

Whatever your industry, whether you are a private, public or not for profit organisation a compliance programme is an essential tool to help you make more money and keep the money you have made. The consequences of failing to comply can severely damage your business and brand. On 24 June 2009, Standards New Zealand introduced the Compliance Standard to New Zealand, NZS/AS 3806:2006 (Standard). The Standard, which originated in Australia, has been adopted in New Zealand as "a voluntary guide for organisations to customise and develop their own compliance system". The Standard essentially provides a benchmark for setting up a compliance programme.

In this FYI we look at the history of the Standard in Australia, how it was criticised and revised before being adopted by Standards New Zealand. We will also examine how the Standard has been used by regulatory authorities in Australia as part of their enforcement powers. It is expected that regulatory authorities in New Zealand (and in particular the Commerce Commission (Commission)) will try to force the adoption of stringent and costly compliance programmes as part of their enforcement powers. Organisations can avoid this by putting in place an effective, less costly, compliance programme now.

Australia

The original Australian Standard in Australia (Standard 98) was released in 1998 as a benchmark against which businesses could assess the effectiveness of their compliance system. However, it was believed in many industries that Standard 98 had a number of shortcomings that reduced its effectiveness. For example, there were insufficient references to complaints handling and risk management and insufficient detail of practical assistance for implementing Standard 98. The Courts also appeared to be reluctant to order the full implementation of compliance systems to meet Standard 98. In 2006 a revised Standard (Standard 06) was developed by Standards Australia to deal with these and other issues and was released in that year.

Standard 06 made a significant departure from the approach adopted in Standard 98. Standard 98 had focused on the structural, operational and maintenance elements of an organisation's compliance programme. Standard 06, on the other hand, has taken a "principles approach" as to how an organisation can best implement a compliance programme, and grouped the principles into four themes:

1. Commitment to Compliance;
2. Implementation;
3. Monitoring and Measuring; and
4. Continual Improvement.

In Australia regulators such as The Australian Securities and Investments Commission and the Australian Competition and Consumer Commission (ACCC) have been successful in forcing compliance programmes based on Standard 06 on offenders (in return for agreeing not to prosecute) and then having them endorsed by the Courts.

We have reviewed Court enforceable undertakings extracted by the ACCC over the last 6 months. They typically require establishment of a Trade Practices Compliance Programme (TPCP) for a minimum period of three years. The ACCC requirements for a TPCP are onerous and expensive. Of the decisions reviewed, in each case the business was required to establish a TPCP that included the following:

1. within 1 month appoint a director or senior manager with either suitable qualifications in corporate compliance or the authority to access suitably qualified professionals with expertise in trade practice issues;
2. within 3 months undertake a risk assessment of the business and provide recommendations for action having regard to the assessment;
3. issue a compliance policy statement and produce a compliance policy;
4. ensure the TPCP includes a complaints handling system and ensure that staff and customers are made aware of the complaints handling system;
5. provide (at least once a year) TPCP training for all directors, officers, employees, representatives and agents of the business;
6. ensure the compliance officer reports to the Board and/or senior management every 6 months on the continuing effectiveness of the TPCP;
7. within 4 months provide to the ACCC copies of each of the documents that constitute the TPCP;
8. an independent compliance professional or legal practitioner with expertise in trade practices law is to undertake an annual review of the TPCP;
9.  the independent compliance professional must provide 2 reports with specific information regarding the scope of the review and the effectiveness of the TPCP; and
10.  the business must promptly implement any recommendations made by the reviewer that are reasonably necessary to maintain and continue the TPCP. If the reviewer believes that the TPCP is not being implemented effectively, the business must, at its own expense, have an additional review conducted to be provided to the ACCC.

The ACCC approach to a compliance programme is at the extreme end of the benchmark that Standard 06 provides for compliance programmes. It is important to remember that Standard 06 (and the Standard) provides a benchmark only and compliance programmes do not necessarily need to adopt each principle in Standard 06 in order to be adequate. In our view an effective compliance programme can be less administratively burdensome and less costly than the compliance programmes that the ACCC has forced upon offenders under its enforcement powers.

New Zealand

The Standard is effectively the same as Standard 06 with minor changes to suit New Zealand circumstances. The introduction of the Standard into New Zealand was done with little in the way of fanfare just prior to Christmas 2008. The Commission supports the Standard. The Commission is responsible for enforcing the Fair Trading Act 1986 (Act) and in particular the breaches of provisions relating to, amongst other things, misleading and deceptive conduct in trade. Enforcement includes investigating suspected breaches of the Act, agreeing settlements with offenders, and where settlement is not agreed, taking Court action against the offenders.

We predict that when the Commission undertakes investigations, and breaches are found in circumstances where a compliance programme is not in place, the Commission in coming to any settlement with the offending organisation will try to insist on full compliance with the new Standard. We also predict that this course of action will be endorsed by the New Zealand Courts and that other regulators in other industries such as the financial services industry will adopt a similar approach.

Next Steps

The good news is that the Standard is just a benchmark: you can implement your own compliance programme. It does not need to be a complex detailed programme but it does need to be effective. An effective compliance programme that works will reduce the risk of mistakes and can be implemented simply and cost effectively. For organisations who currently have an effective compliance programme in place it may mean nothing more than "fine tuning" that existing programme.

Compliance mistakes do happen. When they do, having an effective compliance programme in place is a mitigating factor that the Commission and the Court will take into account. Having a Compliance Programme in place will also help you to resist having the Commission compel you to adopt a more administratively burdensome and costly compliance programme.

For those organisations who do not have a compliance programme it is now more important than ever that you get an effective one in place. Without an effective compliance programme you are more likely to have one imposed on you you are more likely to be prosecuted and the fines will be higher.

Here's what we can do to help make sure you have a simple, user-friendly and effective compliance programme:

• we can review your existing compliance programme to ensure it contains the basic elements required by the Standard. If not we can suggest specific changes.
• if you don't have an effective compliance programme we can help you design one that is.

Authors

Peter Stubbs

Partner - Corporate & Commercial

DDI: +64 9 977 5010

Mobile: +64 21 955 230

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Gwendoline Keel

Senior Associate - Corporate & Commercial

DDI: +64 9 977 5201

Mobile: +64 21 242 6639

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Craig Nelson

Senior Associate - Corporate & Commercial

DDI: +64 9 977 5185

Mobile: +64 21 918 309

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