Australia’s financial services laws have been likened to a poorly built house needing renovation, with the key Corporations Act chapter seen as an old cupboard crammed full and poorly organised. 

“While the first few boxes fit in this cupboard, over time the containers have become mislabelled and inconsistently sorted,” Australian Law Reform Commission (ALRC) Principal Legal Officer Christopher Ash and Legal Officer Ellie Filkin say in an article. 

“More and more law has been packed into old suitcases, tattered boxes, and shabby bags. The cupboard contains more than it was ever designed to hold.” 

The ALRC has entered the home straight of a three-year inquiry inquiry aimed at fixing the problems. The review was triggered by the Hayne royal commission, which found that the existing legislative and regulatory framework is “unnecessarily complex, fails to communicate fundamental norms and hinders compliance”.  

Two previous interim reports tackled definitions and the overall hierarchy, while the recently released Interim Report C takes on the task of cleaning up Chapter 7 of the Corporations Act following hundreds of amendments since its 2001 enactment.  A consolidated final report will be delivered to the Attorney-General by November 30. 

In the latest report the ALRC says financial services laws are scattered about the Corporations Act in ad hoc ways that makes them hard to find and understand, and ASIC Act overlaps compound the difficulties. It says Chapter 7 lacks coherence, doesn’t have an intuitive flow and fails to prioritise key messages. 

The commission proposes a new financial services law schedule that groups relevant areas together in easy to navigate chapters. It also suggests consolidating consumer protections split between the Corporations and ASIC legislation.  

Chapter headings in the new schedule could cover consumer protections, disclosure, advice and general regulatory obligations, the ALRC says.  

It‘s now seeking feedback on its proposals ahead of completing the final report. 

The ALRC emphasises its mandate is around simplifying the legislative framework within existing policy settings, rather than recommending policy changes. 

Within that context, it says provisions relating to disclosure for financial products and services in Chapter 7 are some of the most complex and least coherent in the Corporations Act. 

“The structure of disclosure provisions often means that regulated entities face a collection of puzzle pieces, which they must seek to piece together to understand their obligations,” the report says. 

The structure of rules around financial advice also makes it harder for people to understand the law, “principally because the fractured structure of provisions – spread across the Act with no indication as to where they are to be found – obscures the context and purpose of each group of provisions”. 

Some straightforward recommendations from ALRC interim reports A and B have already moved forward. A bill introduced on June 14 involves a reduction in terms that need definition, and provides for a single glossary and greater consistency between the Corporations and ASIC Acts. 

“Each of these changes taken singly might be considered trivial,” Labor MP Tania Lawrence told Parliament. Taken as a whole, they constitute a real and effective simplification with the potential to save time, trouble and confusion for thousands of Australian individuals and businesses on a daily basis. 

 “Time is money. When we succeed in improving our legislative environment, we create value and improve productivity.” 

The first interim report on definitions also looked at personal and general advice and general product advice. The final report will revisit the area taking into account the Quality of Advice Review recommendations and the Federal Government’s response. 

The ALRC recognises that the full package of reforms would involve “a significant program of work” but makes clear that the task will only become harder if it’s delayed, and the stakes are much higher than just the consequences of an overstuffed cupboard. 

“Law that is unnecessarily difficult to understand is less likely to be followed. Such non-compliance can result in policy failure and harmful consequences for consumers, businesses, and the effective functioning of markets,” Mr Ash and Ms Filkin say. 

The ALRC points out the multi-millions of dollars paid out as a result of legal costs, penalties and remediations when laws are breached, and says legislative framework complexities that make compliance more difficult should not be ignored. 

“Even marginal improvements brought about by legislative reform could produce significant savings in respect of compliance costs, the costs arising from non-compliance, and enforcement costs.”