Last week, the Australian Law Reform Commission (ALRC) completed its review into the legislative framework for Corporations and Financial Services Regulation, and released a Final Report containing a whopping 58 recommendations to reform the existing regime.
The report, titled Confronting Complexity: Reforming Corporations and Financial Services Legislation, made 35 new recommendations and repeated 23 recommendations already included in previous ALRC interim reports. ALRC said their goal is
transforming corporations and financial services legislation from what one judge has described as ‘porridge’, to a more adaptive, efficient, and navigable legislative framework.
We have provided an overview of the key recommendations below.
Creating a new body of Financial Service Law
Currently, provisions in relation to financial services are scattered across the Corporations Act 2001 (Cth) (Corporations Act) and the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act). Recommendation 41 and 42 suggest creating
a dedicated group of provisions known as the Financial Services Law
and that this Financial Services Law should be enacted as a schedule to the Corporations Act.
In addition, Recommendation 43 says this reformed Financial Services Law should implement a new legislative model, comprising
primary legislation containing provisions appropriately enacted only by Parliament, including key obligations and prohibitions;
a 'scoping order' (a single, consolidated legislative instrument) dealing with inclusions, exclusions, class exemptions, and other detail necessary for adjusting the scope of the primary legislation; and
thematic ‘rulebooks’ (consolidated legislative instruments) containing rules giving effect to the primary legislation in different regulatory contexts as appropriate.
Unifying single, simplified definitions of 'financial product' and 'financial services'
The definitions of "financial product" and "financial service" are fundamental to the scope of application of financial services regulations. However, these definitions are currently inconsistent between the Corporations Act and the ASIC Act (e.g. whether credit products are a type of financial product).
Recommendation 31 addresses this issue by suggesting a single, simplified definition of "financial product" and "financial service" in the Corporations Act, which should be referenced by other legislations.
The ALRC says their goal is to simplify the legislative framework by
enabling users to look in one place (the Corporations Act) to determine what each of those terms means.
Consolidating financial services and consumer protection provisions
Recommendations 33-40 recommend that the Corporations Act should be amended to "restructure and reframe" the following provisions that are currently scattered across the Corporations Act and/or the ASIC Act, among others:
unconscionable conduct and misleading and deceptive conduct provisions;
disclosure for financial products and financial services;
financial advice; and
general provisions related to financial services providers, and administrative or procedural matters concerning financial services licensees.
Grouping offence and penalty provisions
Recommendation 56 suggests that offence and penalty provisions in corporations and financial services legislation should be consolidated into a smaller number of provisions covering the same conduct.
This is intended to address the current:
multiplicity of offence and penalty provisions...having a large number of detailed, sometimes overlapping, offence and penalty provisions does not lead to better compliance or more effective enforcement.
The Final Report has been tabled to Parliament, but it will be up to the Parliament to decide whether to adopt any or all of the recommendations and the timeframe for doing so.
In any case, the Final Report sets out a detailed roadmap to simplify and reform the Corporations Act and the financial services law framework, which have long been derided for their complexity.
The Report complements a number of other ongoing reform objectives of the government, including
the ongoing consultation to reform financial market infrastructure ;
the consultation to regulate Buy Now, Pay Later.
Written by S Pettigrove and J Huang