How the general “efficiently, honestly and fairly” obligation has adapted to today’s legal context: where are we now with s 912A(1)(a)?

This article was first published in the LexisNexis Financial Services Newsletter Issue 25.2 2026.

The last several years have been transformative for the Australian financial services (AFS) sector. One of the more important changes has been the judicial development on the scope of the obligation of AFS licensees in s 912A(1)(a) of the Corporations Act 2001 (Cth) (Corporations Act) to do all things necessary to ensure that financial services covered by the AFS licence are provided “efficiently, honestly and fairly” (the EHF obligation).

Since the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, we have seen the Australian Securities and Investments Commission (ASIC) apply the EHF obligation to a wide range of circumstances, including those in which there is no direct link to a financial service. This has impacted what it means to act efficiently, honestly and fairly in practice today. This article covers recent trends in the EHF obligation.

The legislative provision

The Corporations Act imposes on AFS licensees what may be described as an EHF obligation or standard.

The provision is contained in s 912A(1)(a) under the title “General obligations” and relevantly states: “a financial services licensee must do all things necessary to ensure that the financial services covered by the licence are provided efficiently, honestly and fairly”.

The EHF obligation became a civil penalty provision on and from 13 March 2019. Prior to that time, ASIC could only undertake administrative action (eg, imposing licence conditions).

What do the terms mean?

The EHF obligation is primarily directed to the systems and procedures of AFS licensees which enable their standards of conduct in the provision of their services to be reviewed and assured.^[1]

All things necessary to ensure

The phrase “all things necessary to ensure” has the following effect on the construction of the provision:

• It has a forward-looking aspect — the provision is concerned with the question of taking of steps to achieve compliance before any specific instance of non-compliance has occurred.^[2] It may therefore require steps to be taken to prevent future lapses or failures,^[3] and changes to be made to systems over time. ^[4]
• It does not impose a standard of absolute perfection; it imposes a reasonable standard of performance.^[5] Systems established do not have to ensure that the outcome is achieved without fail.^[6]

Importantly, this phrase means that the obligation is not focussed solely on the activities directly involved in providing the financial service, and can apply to steps which support the provision of the financial service.

Financial services covered by the licence

The authorisations set out in the AFS licence will determine the relevant financial services, noting that some financial services (like operating a registered scheme and providing a superannuation trustee service) are wider than other financial services (eg providing a custodial or depository service, dealing in a financial product).

A “service” covered by the licence is not merely the performance of an act, it includes the terms of the arrangement under which the act is performed, for example that it should not be performed negligently. As a result, the existence or absence of an appropriate remediation program can be relevant to whether a financial service has been provided in accordance with the section.^[7]

Where elements of financial services are outsourced, the ultimate responsibility for compliance remains with the licensee. In that sense, the obligations under s 912A(1)(a) are not delegable.^[8]

Further, it has been held that the EHF obligation can apply both in relation to acts or omissions of an AFS licensee that occur outside Australia and to natural persons who reside outside of Australia.^[9]

Efficiently, honestly and fairly — one obligation or three?

There is an unresolved issue as to whether the phrase “efficiently, honestly and fairly” is a single compendious standard or whether it imposes three concurrent obligations. The issue matters because, subject to what is discussed below, if there are three concurrent obligations, a breach of only one would be sufficient to give rise to a breach of the provision.

Justice Young originally articulated what has come to be seen as the composite approach in Story v National Companies & Securities Commission,^[10] namely that the licensee must be a:

. . . person who goes about their duties efficiently having regard to the dictates of honesty and fairness, honestly having regard to the dictates of efficiency and fairness, and fairly having regard to the dictates of efficiency and honesty.^[11]

This articulation of the test has been widely quoted in other cases.

However, O’Bryan J sitting as an appeal judge in the Full Federal Court in Australian Securities and Investment Commission (ASIC) v Westpac Securities Administration Ltd^[12] (ASIC v Westpac Securities) expressed “considerable reservations” about the view that the phrase should be read compendiously. Subsequent cases have largely found it unnecessary to resolve the question, although in a series of judgments Beach J has expressed the view that the expression is to be interpreted compendiously.^[13]

In any event, in considering the licensee’s conduct, the courts have not sought to analyse closely whether all three elements have been separately breached. In particular circumstances, the courts have been (implicitly) prepared to read down the “honesty” component such that it is arguably not always necessary to show a failure of efficiency, a failure of honesty and a failure of fairness in order to find a breach of the EHF obligation. Cases have found breaches where in effect only failures of each of the “efficiency” and “fairness” elements have been identified.

Efficiently, honestly and fairly — meaning

The words “efficiently, honestly and fairly” are general and the courts have emphasised that the boundaries and meaning of the phrase are incapable of clear or exhaustive definition.^[14] However, the cases do provide some guidance as to the meaning of each of the three terms.

“Efficient” is said to refer to a person who is adequate in performance, produces the desired effect, is capable, competent and adequate. Inefficiency may be established by demonstrating that the performance of a licensee’s functions falls short of the reasonable standard of performance that the public is entitled to expect.^[15]

Whether the conduct meets the “honestly” standard is to be considered having regard to commercial norms and morality.^[16] As a result, conduct which is not criminal but which is “morally wrong in a commercial sense” may give rise to a failure to meet the standard.^[17] Importantly the conduct does not need to be intentional.

The courts have not sought to provide any extensive positive definition of the concept of “fairly” as used in s 912A(1)(a). Justice O’Bryan in ASIC v Westpac Securities^[18] suggested it ought to carry its “ordinary meaning” of “absence of injustice, even-handedness and reasonableness” whilst Beach J in Australian Securities and Investments Commission (ASIC) v AGM Markets Pty Ltd (In Liq) (No 3)^[19] suggested that the dictionary meaning (which includes “free from injustice”) was “question begging and conclusionary”, and while his Honour did not find that the term could be defined by what it was not (“free from bias, free from dishonesty”) he did agree that this could be of some use in setting boundaries as to the meaning of the term. Importantly his Honour recognised that “fairly” does take into account the position of the licensee and is not to only be viewed from the perspective of an investor, borrower or other person interacting with the licensee.

Types of cases in which breaches of s 912A have been found

Breaches of the “efficiently, honestly and fairly” standard have been found in a wide range of instances. A review of the cases shows breaches being found in circumstances that include where:

• fees or premiums have been charged or deducted from accounts where there was no right to receive or deduct such fees or premiums
• failures in systems have led to those fees or premiums being charged or deducted
• remediation for admitted errors or actions has been inadequate
• there have been findings of unconscionable conduct
• there have been findings of misleading or deceptive conduct
• there have been failures to process death benefits and insurance claims and
• there was a failure to have adequate measures in place to protect clients from cybersecurity risks

Drawing the threads together

In this changed framework, it will be necessary for AFS licensees to closely consider the impact of governance and compliance systems, data and incident response processes and remediation, when planning for compliance with the EHF obligation. The EHF obligation must be treated as a system-level obligation with a focus on whether governance, product, distribution, data and remediation, taken together, can reliably deliver financial services that are timely, accurate, consumer-centric and legally complaint.

When considering the EHF obligation, licensees should note that orders were made by consent of both parties with an agreed set of facts in many instances where breaches of s 912A(1)(a) have been found by the court. As a result, there has been little occasion for the courts to finally determine the scope of the EHF obligation and caution should be taken when considering these types of cases. Nevertheless, the regulatory stance is becoming clearer. ASIC appears to be framing the EHF obligation as applying to a wider range of steps which support a financial service and not just to the activities involved in providing the financial service.

These two elements impact AFS licensees when establishing and reviewing governance and compliance systems, when assessing incidents for breach reporting purposes and when responding to regulatory investigations.

As a result, the authors suggest that it is appropriate for AFS licensees to take stock and assess the current legal and regulatory position on the EHF obligation and ensure that they are comfortable with the organisation’s position on the EHF obligation.