Financial services law likened to a house in need of ‘serious tidying’

The Australian Law Reform Commission (ALRC) has published its Interim Report B focusing on corporations and financial services legislation, and detailing the need for overall simplification, and has invited stakeholder feedback.

The ALRC likened financial services law to a house in need of “serious tidying” — “a house in which new annexes have been added with little thought to overall design, and in which objects are scattered and hidden, with little regard to how they may be found in the future.”

Referring to it as the “most critical interim report”, the ALRC said “there is a level of consensus among stakeholders that the law has become unmanageably and unnecessarily complex, and there is significant appetite and impetus for change”.

Moreover, the ALRC argued that the “law today does not reflect any single design philosophy” and is “disorganised, unwieldy, incoherent, and difficult to navigate”.

“For example, core obligations are currently scattered across different layers of the legislative hierarchy — the act, regulations, and other legislative instruments. Little-known regulations or instruments sometimes provide for hefty terms of imprisonment, but are difficult to find or understand,” the ALRC has said.

As a result, it noted, the current law is “unnecessarily complex”, undermining the likelihood that its substance and intent will be understood and followed.

Accordingly, the commission said, there is an urgent need to create a legislative structure that is fit for purpose and that can accommodate future policy initiatives.

“In the ALRC’s view, the introduction of a more rational legislative design and hierarchy is key to resolving much of the byzantine complexity that currently afflicts corporations and financial services law. While fixing this problem will be no small task, it can be undertaken in a staged approach — one room at a time. Without change, the law is on track for even greater complexity and incomprehensibility,” the commission said.

The ALRC acknowledged that the reframing and restructuring of provisions relating to financial advice could coincide with any substantive reforms arising out of the Quality of Advice Review.

Stakeholders are invited to provide feedback on the proposals and questions by 30 November 2022.