Financial services legislation no longer fit for purpose, says ALRC report

Last week the Final Report of the Australian Law Reform Commissions’ (ALRC) inquiry into simplification of the legislative framework for corporations and financial services was tabled in parliament. The comprehensive report, comprising 58 recommendations, aims to overhaul the existing legislative framework, which the ALRC labelled as “no longer fit for purpose".  

The inquiry focused on three key areas each the subject of a separate interim report released over the past 3 years;  

• the appropriate use of definitions in corporations and financial services legislation;  

• regulatory design and the hierarchy of primary law provisions, regulations, class orders, and standards; and 

• potential reframing or restructuring of Chapter 7 of the Corporations Act. 

The ALRCs’ inquiry highlighted a number of issues with the current framework including; unnecessary complexity, an incoherent legislative hierarchy, and a rapidly increasing number of legislative instruments, powers and notional amendments creating what the ALRC described as a "legislative maze". 

Among the 58 recommendations, the ALRC proposed significant reforms including; 

• Overhauling the current legislative model for Financial Services Law: Consolidating the provisions that regulate the financial services industry within the ASIC Act and Chapter 7 of the Corporations Act into a unified 'Financial Services Law' under the Corporations Act. 
• Simplified definitions: Introducing a standardised definition of the terms 'financial product' and 'financial service' which currently have multiple definitions that are used within the same piece of legislation. 
• Streamlined Offence and Penalty Provisions: Consolidated and simplifying offence and penalty provisions to make it easier for advisers to understand their obligations and consumers to enforce their rights. 
• Removing notional amendments: the report noted that the use of notional amendments (provisions that change the legal effect of another provision without changing the text of that provision) have made the Corporations Act “deeply inaccessible” to remedy this the ALRC proposes to replace these amendments with ‘thematic, consolidated rulebooks’ to regulate particular products, services or circumstances. 

The ALRC believes that the proposed reforms will “reduce costs for service providers and consumers, improve productivity by reducing complexity, and provide clarity around compliance requirements and enforcement.” 

The Report provides a detailed roadmap for implementing the proposed legislative reforms, although a number of reforms recommended in earlier interim reports have already been introduced.  The government is expected to provide a response to the report later this year.