Licensee obligations ‘obscured’ by red tape

In an industry webinar on Monday, Australian Law Reform Commission legal officer Nicholas Simoes da Silva said in the two decades since the Corporations Act had been introduced, it had increased in size by around 60 per cent and been amended more than 100 times.

“In 2001 the Act was 500,000 words long, one of the biggest on the statute book, and 121 amending acts later it’s over 800,000 words and accounts for 4 percent of all statute law at the Commonwealth level,” Mr Samoes da Silva said.

“That can mean some sections being so long that a reader fails to maintain a clear understanding of what that section is trying to achieve – the average section length is 200 words, but 59 sections come in at over 1,000 words. Some of the more substantive sections come in at over 25,000 words, including the obligations necessary to hold an AFSL.”

Mr Samoes da Silva revealed a number of sobering statistics around how long and unwieldy the central act governing financial services law had become, with the number of sections in the Corporations Act increasing by 72 per cent over the past 20 years, and the number of subsections rising by more than 120 per cent.

“Length in the wrong way can be a significant source of complexity, as what should be clear obligations become obscured behind voluminous rules in the Act,” he said.

“The number of divisions, subdivisions and parts has skyrocketed, but the number of chapters has remained largely the same, so we’re packing more detail into chapters that are losing their conceptual consistency and clarity.

“Sections are deeply interwoven through cross-references and few parts or sections stand on their own, so to understand one section you need to understand multiple sections, or potentially even multiple sections of other Acts. You can be led on a race around the whole Commonwealth statute book.”

Mr Samoes da Silva said in its current state, even large corporations could only navigate the financial services legal system “with difficulty”, and that it was becoming “a huge problem” for mid-sized licensees and self-licensed advisers.

“It’s easy to think complexity affects those who can manage it – businesses, lawyers, sophisticated participants – but complexity matters to us all,” he said.

“If we want people to obey the law we need to make understanding it as easy as possible, this is critical for competition. Consumers also need to know their rights and be able to exercise them under the law, otherwise it matters little to the average citizen.”

The commission is currently conducting a review into corporations and financial services legislation, with its first interim report due in November.