The Schaper report in December 2023 recommended further evaluation of the merits of replacing the Franchising Code of Conduct with a licensing regime. This recommendation arose after a submission to the review by the Australian Competition and Consumer Commission. Without detail of what a licensing regime may look like there is uncertainty about what any licensing regime may require.
The recent case of ASIC v RAMS however provides an illustration of the effect a licensing regime may have on a franchisors.
Background
RAMS Financial Group Lty Ltd (RAMS) was:
founded in 1991;
a franchisor of independent franchisees who wrote RAMS-branded home loans;
required to be licenced to operate its business under the National Consumer Credit Protection Act 2009 (Cth) (Act);
held an Australian Credit Licensee which required it to comply with specific requirements in order to maintain its licence and continue to lawfully operate its business;
eventually a wholly owned subsidiary of Westpac Banking Corporation (Westpac), that operated as a standalone business within the wider Westpac Group.
On 6 August 2024, Westpac announced that it would close RAMS (and all franchisee offices) to new home loan applications and absorb the existing home loans into the Westpac Group.
On 4 June 2025 the Australian Securities and Investments Commission (ASIC) initiated legal proceedings against RAMS alleging:
RAMS failed to implement adequate procedures to ensure that its independent franchisees complied with statutory requirements;
RAMS did not adequately supervise its franchise network;
RAMS permitted through the above failures, RAMS franchisees to submit fake pay slips from fake employers , alter customer’s liabilities and expenses to allow them to meet serviceability requirements and in one case manufactured a fake contract for the sale of a house resulting in those franchisees artificially increasing their commissions.
ASIC’s case
ASIC alleges that RAMS contravened its obligations as an Australian Credit Licensee under the Act between June 2019 and April 2023’ by:
dealing with unlicensed traders;
failing to implement appropriate mechanisms to prevent any conflicts of interest with clients;
failing to comply with credit legislation;
failing to supervise its representatives to ensure compliance with the Act, including failures to enforce or create policies and safeguards against misconduct or to investigate such misconduct; and
failing to take all steps reasonably necessary to ensure that RAMS’ credit activities were engaged efficiently, honestly and fairly.
ASIC is seeking pecuniary penalties against RAMS and declarations from the Court that RAMS was in breach of the Act.
Current state of the proceedings
RAMS has admitted liability for the contraventions and has remediated some 50 customers who were negatively impacted by the breaches.
The Court is yet to determine the penalty to be imposed.
What does this mean for franchises?
Currently, apart from the Fair Work Act legislative provisions that render franchisors directly liable for non-compliance by franchisees with the Fair Work Act (usually underpayments of employees), franchisors are not directly liable for unlawful conduct of individual franchisees.
Contraventions of the law by franchisees are sheeted home to them as the perpetrator of any unlawful activity and there is generally no direct liability for the Franchisor.
For example if a franchisee has:
failed to comply with its food licence then the regulator will prosecute the holder of the food licence;
breached advertising regulations then the franchisee will be prosecuted by the local authority with jurisdiction;
failed to comply with a workplace health and safety law in the State or Territory in which they operate then the franchisee will be prosecuted for this contravention;
acted criminally then the franchisee will be prosecuted by the police and relevant public prosecutor.
Whilst a Franchisor has incentive to ensure lawful compliance by its franchisees, as non-compliant or unlawful conduct will adversely affect the franchise brand with the public, potential franchisees looking to acquire a franchise and morale of its own employees, there is no legal obligation holding it directly accountable for failing to:
implement policies or best practice standards within networks;
supervise its franchisees performing their businesses;
assess whether its franchisees are compliant with the laws of the jurisdiction that they operate in;
monitor compliance of franchisees; and
act on non-compliance by franchisees.
In this case, it was only because RAMS’ was required to hold and operate under a credit licence that these type of liabilities were imposed on it and RAMS became liable for the matters asserted by the ASIC.
On one hand being subject to a licencing regime theoretically provides a greater degree of certainty for members of the public in dealing with a licensed entity that standards and supervision are in place in respect of the interaction with the franchisee.
However the RAMS example shows that even if a business is licenced there may not be the standards and supervision in place in practice as required by the Act licensing the business operation.
So insisting on a business holding a licence in the RAMS case is then only about recovery for breaches of a licence after the event by a regulator.
Other uncertainties about a licence model
The Australian Credit Licence regime also requires holders of licences and those that operate as authorised representatives of the licence holder to have certain qualifications and maintain specified ongoing education / training activities.
If similar qualifications and education requirements are imposed as requirements of a licensing regime then entry into a franchised business may also result in fewer applications to become franchisees excluding those not meeting the qualification criteria.
This would potentially stifle franchising, a style of business operation that promotes itself as offering an avenue to become involved in a small business with a tested concept and support, rather than going into small business alone.
Conceptually it is also presently unclear:
how a franchising licence regime could apply equally effectively to an ice creamery franchise and also be relevant to a mortgage broking franchise;
what it would add (other than more red tape) to franchise businesses already operating under legislated regimes. For example real estate agents, tax agents and electrical testers are licenced and already regulated as a result of their respective business operations, with a specific regime applying to each; and
how such a regime would not contravene anti-competitive principles by imposing more requirements and compliance criteria on a franchise business than a non-franchise operating the same business.
Until more is made publicly available about what may be envisaged by a licence regime and greater consideration is given to the application of a licencing regime across very diverse franchise businesses, uncertainty will remain about what is intended and what benefit it is hoped would be provided.
If wish to discuss this further, please contact:
Alicia Hill
Principal
T: +61 3 9611 0180 | M: +61 484 313 865
E: ahill@sladen.com.au
Jake Cole
Senior Associate
T: +61 3 9611 0112 | M: +61 413 557 157
E: jcole@sladen.com.au
Charlie Cooper
Law Clerk
E: ccooper@sladen.com.au
