FCA states its case in senate inquiry

Inside Franchise Business: what will be the focus of the senate inquiry into franchising?What shoiuld be the focus of the Government’s franchising inquiry? According to the sector’s peak body the spotlight should be on enforcing compliance with existing regulation, rather than adding new regulation.

In its submission to the Parliamentary inquiry, the Franchise Council of Australia (FCA) said examples of poor franchising experiences would most certainly be reduced by greater compliance and enforcement, supported by a stronger compliance culture across the sector.

FCA CEO Mary Aldred said “No one is keener to understand the causes of reported episodes of poor franchising experience than the FCA. A number of reported cases appear to suggest that the Franchising Code of Conduct has been breached and where available dispute mechanisms have not been accessed.”

Aldred stressed the majority of franchisors maintain “the highest standards” but acknowledges that poor practice exists within the sector.

“We acknowledge that there are examples of poor commercial outcomes within franchising that appear to arise not only from market pressures, but also from incidences of poor practice and standards and apparent breaches of the Code of Conduct.

“Stronger compliance with the Code, active enforcement and highlighting best practice should be key areas of attention for the inquiry,” Aldred said.

“The issue is not that the existing regulatory framework does not prescribe protective measures. Rather, it is that in a number of reported cases the Code has simply not being adhered to and, when breached, not always enforced.

“Ensuring regulators such as the ACCC are adequately resourced to collect data, provide guidance on best practice, investigate claims of wrongdoing and, where necessary, take enforcement action must be a key focus of this inquiry.

“The inquiry has an opportunity to make significant inroads on all of these fronts,” Aldred added.

6 FCA suggestions for an improved franchise sector

Recommendations made to the inquiry by the FCA for improving better regulatory compliance and enforcement outcomes within the sector, included:

  • Making additional funding available to the ACCC and other allied agencies to support better enforcement of the Code and more efficiently respond to small business concerns about any alleged lack of compliance;
  • Encouraging the ACCC to use its powers to issue fines and infringement notices, conduct random audits and take Court actions more frequently, where there is systemic evidence of non-compliance;
  • Ensuring more franchisees use and follow the existing Code process by:
    • Allocating funding to educational initiatives that ensure prospective franchisees are aware of the protections available to them, the benefits of obtaining advice, their due diligence obligations and available guidance resources
    • Streamlining the Code’s disclosure documentation, providing more focused information about the risks and opportunities, rewards and obligations of a prospective franchise business investment, in a format that is easier for franchisees and their advisors to use
    • Translating the Code’s Information Statement into multiple languages to cater for the fact that about 70 per cent  of small business owners are migrants; and
  • Mandating the requirement for some prospective franchisees to obtain competent legal and business advice, before making the significant personal and commercial decision to invest in a franchise business opportunity

Aldred pointed out that a franchisor’s first customer is their franchisees.

“Publicised examples show what can happen if other imperatives or priorities creep into the franchise relationship.  This is where a strong compliance and enforcement setting is incredibly important to respect and protect this business model.”

Aldred warned that “overly heavy-handed and unnecessary regulation, will jeopardise jobs, risk thousands of small businesses and hurt consumers”.