The Australian Law Reform Commission (ALRC) has proposed changing the wording of the obligation to act “efficiently, honestly and fairly” and has suggested amending the retail client definition and improving advice terms.

The proposals are outlined in a first Interim Report released as part of a three-year review to remove complexity from financial services legislation and ensure the law is “fit for purpose”.

The ALRC proposes replacing the word “efficiently” with “professionally” in the Australian Financial Services licensees’ obligation and suggests examples of unfair conduct should be included “to clarify what is otherwise an open-ended and uncertain obligation”.

“Given the centrality of the obligation, issues concerning its clarity and comprehensibility loom large,” the ALRC says.

The Interim Report makes 13 recommendations on technical matters that the Government could implement immediately and seeks feedback on 16 proposals and eight questions.

The definition of retail client could be amended for clarity and to simplify the existing test, with general insurance a critical area affected by complexity, the ALRC says.

The report says the treatment of the general insurance products listed in current laws could be maintained without making special provisions, which would end the need for seven existing regulations spanning 1772 words.

“General insurance products would be acquired by a person as a retail client unless acquired for use in connection with a business that is not a small business,” it says. Other changes could make sure products aren’t “inappropriately captured”.

The interim report suggests removing the “financial product advice” definition and supports debate on new labels for both general and personal advice to make the distinction clearer and to better reflect the role of each.

“Financial product advice” is a broad term that includes general and personal advice and is generally not necessary, the report says. “Simplification can be achieved by removing the collective label.”

The ALRC stops short of proposing a replacement general advice term, noting the issue may be considered in next year’s Quality of Advice Review, recommended by the Hayne royal commission.

Renaming personal advice should also be considered, it says, to better distinguish between sales-related and promotional activities and more tailored assistance, with “financial advice” an example of another option.

The report says understanding definitions in corporations and financial services legislation can be like “unpacking a series of Russian dolls”, because definitions contain terms that are themselves defined.

“Some of those defined terms then rely on yet more defined terms, and so on,” it says. “This creates long ‘chains’ of interconnected definitions that must be read together in order to understand the first definition.”

The ALRC also proposes that the obligation to provide financial product disclosure be reframed to incorporate an alternative standard that places greater emphasis on outcomes.

Submissions on the Interim Report proposals and questions are due by February 25.

The report is available here.