Ahead of its interim report into financial services regulation later this year, the Australian Law Reform Commission (ALRC) has said the Corporations Act has grown into a “legislative morass” of unwieldy amendments with an overly prescriptive approach to regulation.
Commission president Justice SC Derrington said as part of its review into the framework for corporations and financial services legislation, the ALRC had so far heard from over 100 individuals and organisations about complexities that made it hard for those in the sector to do business.
“We must consider how to disentangle the regulatory and legislative morass that currently entraps both business and consumers navigating a sector of our economy that manages over $4 trillion of our collective wealth,” Justice Derrington said.
A spokesperson for the commission said its initial findings had identified four key problems with the current legislative framework – an overly prescriptive approach to regulation; complex and unwieldy regulation contained in various legislative instruments; complexity of definitions; and inconsistent use of definitions.
The ALRC said the demand for clarity certainty from industry may have actually increased the complexity of regulation over time, and may have contributed to the large volume of regulatory guidance issued by ASIC.
“Financial services laws adopt an overly prescriptive approach to regulation. This creates risks of regulatory arbitrage, adds to compliance costs and reduces productivity,” the commission said.
“This complexity results from demand from industry and regulators for increased certainty. The result is false certainty – too much prescription actually obscures the clarity of the law.
“For example, the principles-based obligation that ‘[t]he provider must act in the best interests of the client in relation to the advice’ (16 words) is tied to a prescriptive ‘safe harbour’ defence that is 261 words long.”
The ALRC said the number of enforcement bodies and actors in the financial services regulatory space made it increasingly difficult to navigate the “complex ecosystem of legislative and non-legislative norms”.
“This ecosystem reflects overlapping, and occasionally conflicting, interventions by government, regulators, the parliament and a range of other actors,” the commission said.
“These actors include other rule- and norm-creating entities such as AFCA, FASEA and the ASX, as well as businesses, industry bodies and consumer advocates.”
The commission said it would be running a webinar detailing the inquiry’s initial findings on 17 May, with the first interim report to be delivered in November.
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