The Australian Law Reform Commission’s (ALRC) second interim report on reducing the complexity of financial services legislation proposes a more cohesive and principled alternative model, and “embraces minimalism”.
The legislative model proposed by the ALRC would simplify the Corporations Act, which currently contains a large amount of normative detail, to create a navigable legislative hierarchy. The model would also take into account existing features that currently underpin the regulatory architecture of financial products and services.
The three elements that make up the new model include: a decluttered companies law with far fewer prescriptive details, an implementing decree containing exclusions and exemptions; and thematic rules.
“If Australia’s corporate and financial services laws were compared to a house, it would be a big, messy house. A house in which new annexes have been added with little thought to the overall design, and in which objects are scattered and hidden away, with little as to how they might be found in the future. In short, a house that is completely messy. A house that needs some serious rethinking and tidying up,” said William Isdale and Christopher Ash.
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On the enforcement order, they said: “An enforcement order would contain the vast majority of the exclusions and exemptions of the law, as well as other details that help define the scope of the law. Currently, the Exclusions and exemptions are spread over many places and are often expressed in tediously complex ways.For example, hundreds of legislative instruments create bespoke laws for certain entities by “textually amending” corporate law.
“The resulting maze – and the onerous expectation it places on readers to ‘reconstruct’ the law – is inconsistent with the rule of law ideal that the law should be accessible and knowable. In comparison , a scope order would provide a single, clearly identifiable “home” for exclusions, exemptions and other details defining the scope of the law.”
Meanwhile, they said the rulebooks would contain the normative material.
“The rules would be readily adaptable to meet the needs of changing circumstances and organized by topic to ensure airworthiness. The rules would contain prescriptive details consistent with and controlled by general principles of law,” they said. .
“For example, the law would contain a basic obligation to provide appropriate disclosure before issuing certain products, while a disclosure regulation could come down to page length, layout and other details. rules organized by topic would reduce the number of places a person has to look to find the law.”
The interim report shows that many aspects of the current complexity of the legal regime for businesses and financial services are unnecessary. Moreover, as frequent changes to the law continue to be made, the level of complexity will only increase.
Recommendations made in the Interim Report include repealing redundant and outdated provisions and forming an ongoing program to determine when provisions should be repealed; and amending legislation to correct unclear or incorrect provisions.
“The sooner reforms can be made to the regulatory architecture, the easier they will be to implement,” the report says.
“Conversely, the longer existing ad hoc legislative design choices remain entrenched, the more difficult, time-consuming and costly it will become to disentangle the complexity that inevitably accumulates. purpose and which can adapt to future policy initiatives.”
ALRC Chairperson Justice Sarah Derrington said the growing complexity of the law governing companies and financial services is having a significant cost to the industry and, ultimately, to consumers.
“This complexity keeps increasing – the Corporations Act increased by 597 pages since the start of the ALRC investigation,” Derrington commented.
“To be fit for purpose, the legislative framework must reflect the dynamic nature of the financial services industry and its significant contribution to the Australian economy. In addition, the regulatory framework must meet the needs of consumers of financial products and services who are trying to understand their legal rights.
Isdale and Ash added: “In short, that we could adopt a little more minimalism, move some of our clutter, and throw away broken toys and scattered pizza boxes. If implemented, the proposals of the ALRC would make our house of law that much more inviting to anyone who needs to visit.”
The ALRC invites submissions from the public in response to proposals and questions by November 30.
As a result of the Royal Commission, the ALRC was tasked with reviewing financial services laws to simplify regulation of the industry. Namely, the ALRC was intended to target the provisions of the Companies Act 2001 (Cth) and the Companies Regulations 2001 (Cth), among other legislative instruments.
The review has three main areas, each of which is the subject of an individual interim report.
Following interim reports focusing on the appropriate use of definitions in financial services legislation and regulatory design, the hierarchy of primary law provisions and regulatory category orders, a third and final interim report is expected from here on August 25, 2023.
The third interim report will focus on the potential reframing or restriction of Chapter 7 of the Corporations Act. The aim will be to identify ways to make Chapter 7 clearer, more coherent and more effective.