Principles-based regulation won’t work: industry

A paper outlining the initial findings from the Australian Law Reform Commission’s consultations with industry stakeholders indicates support for Kenneth Hayne’s “six norms of conduct”, rather than more detailed rules for financial services practitioners to follow, is not strong.

The Australian Law Reform Commission’s background paper released earlier this month revealed initial stakeholder views on the commission’s review of the legislative framework for corporations and financial services.

Among the issues that received broad support across the more than 130 lawyers, academics, industry bodies, financial services providers and other participants to the inquiry was the move to principles-based regulation, and the fact that principles “on their own” had the potential to create legal grey areas.

The paper said there was “recognition that principles should be backed by clear policy and accompanied by rules/outcomes/guidance and indicative behaviours”, following commissioner Kenneth Hayne’s assertions in his final royal commission findings that financial institutions should aim to conduct themselves in accordance with six norms of conduct. 


These were to obey the law, not mislead or deceive, act fairly, provide services that are fit for purpose, deliver services with reasonable care and skill, and when acting for another, act in the best interests of that other.

Corporate law firm Ashurst has previously said the scope of obligations for financial institutions under such principles was “vague at best”, while legal experts have also taken umbrage with the principles-based code of ethics that advisers must now abide by in the wake of the inquiry.

“The ALRC has been urged to consider carefully how principles and norms can be helpfully integrated and balanced with more detailed and prescriptive rules that are also often required,” the commission’s report stated.

Other areas where industry participants largely agreed on the need for change included making the many legislative instruments relating to corporations legislation easier to navigate using technology and standardising similar definitions such as “misleading or deceptive conduct” and “unconscionable conduct”.

“Many stakeholders have identified navigability of the law to be a key concern – it is too difficult to locate relevant parts of the law, and even experienced lawyers cannot always be confident that they are taking into account all relevant provisions and instruments on a particular issue without ‘missing something’,” the paper said.

In addition, there was a consensus to look at setting up a body similar to the former Corporations and Markets Advisory Committee to provide independent counsel to the government on the impact of legislative change and necessary areas for reform in the sector.

When it came to policy-related issues identified by stakeholders in the review, the complex web of financial advice legislation was a common thread, with participants identifying problems applying the retail/wholesale client distinction, problems with the threshold between general and personal advice, and overly prescriptive regulations around advice generally.

The commission said some consultees noted that the general advice definition was “unclear and that the High Court should not be needed to define boundaries”, and that definitions around financial product advice generally were “too broad”, “too complex” and “[needed] to be streamlined”.

Principles-based regulation won’t work: industry
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