The commission, which has heard from more than 100 industry participants so far in its initial inquiry into the corporations and financial services legislation, has said overly prescriptive approaches, complex amendments and definitions and inconsistencies in different provider obligations are key features making the current framework almost impossible to navigate.
“The complexity and prescriptiveness of Australian financial services laws imposes unnecessary costs to business, inhibits productivity and undermines innovation in the sector,” the ALRC said in an information sheet around its initial findings.
“The intricacy of financial services laws makes it harder for businesses to meaningfully comply with the law, affecting businesses and consumers.”
The commission said the vast number of legislative instruments established over the years to deal with amendments to the Corporations Act had created a system that was “overly complex and unwieldy”.
“It is difficult for players in the industry, regulators, practitioners and consumers to keep track of – and understand – the law as a whole,” the ALRC said.
“For example, the ALRC’s mapping of the PDS regime for financial products under the Corporations Act revealed that the relevant part of the act is affected by 83 different legislative instruments, as well as a substantial number of regulations.”
The commission has also flagged the complexity of definitions within the legislation – such as those that stipulate who is and isn’t a retail advice client – as another area in need of reform.
“Definitions are used in financial services regulation to ‘switch on and off’ different obligations that may apply to the industry,” the ALRC said.
“As a consequence, multiple layers of detailed exceptions and qualifications to definitions are scattered across different pieces of legislation. This makes it difficult when particular obligations apply – resulting in unnecessary costs for industry and government as well as a lack of clarity.
“For example, classification of a customer as a ‘retail client’ affects the disclosure and conduct obligations owed by a financial services provider. Lengthy and numerous provisions in both the Corporations Act and the Corporations Regulations define a ‘retail client’, in addition to being subject to multiple exceptions.”
The commission has also pointed to the safe harbour defence currently required in adviser-client files to prove best interests duty compliance as “obscur[ing] the clarity of the law”, suggesting regulations should not be so prescriptive in enforcing what is essentially a principles-based legal obligation.
The FPA as well as privately owned licensee Lifespan has previously called for the provisions to be scrapped as part of ASIC’s moves to make advice more affordable.
The ALRC is due to present its interim report on the inquiry in November.
World Hercules
Ban Vertically Integrated Product and Advisers and so much BS Regs and laws can disappear.
No matter how much BS disclosure, rules, REGS, FARSEA, etc Vertically Integrated Advisers and product is tooooo conflicted.
Do Drug companies own and license Drs ?
Only once this Vertical integration is ceased do we have a chance.
Hayne RC totally blew this big chance.
Industry Super will never allow it as they are the new masters of conflicted, hidden commissions, vertically integrated SALES.
As for ASIC, one of the most corrupted basket cases ever. A complete clean out required. And start again with Real Advisers and clients involved.
Real Advisers can only dream hey !!!
As current reality is rather sad.
All they need to do is talk to ADVISERS !
The reason for the abundance of rules is that too many advisers are conflicted, servants of two masters – their clients and their product provider licensee. Remove the cause and you can deal with the effect.
Keep the cause and any simplification will be undone in a hurry.
I get where you are coming from (and agree with the remedy), but would suggest that their only master is the product provider licensee.
Yes it is overly complex and needs to be cleaned up. But let’s not lose sight of the real problem – We have a militant, rogue regulator which dreams up the most extreme and bizarre interpretations of the law (especially the requirement for AFSL’s to act efficiently, honestly and fairly – which can be twisted around to suit whatever agenda ASIC wishes to pursue). Our regulator then applies these interpretations retrospectively as a weapon to permanently damage careers and destroy businesses en masse. This is the problem that needs to be fixed. Unless ASIC is pulled into line and held responsible for their appalling conduct, nothing will change.
doesn’t help their employee’s get bonuses they have motive to find something anything so they get paid… at the same time they tell bank employees they need balance score cards
Part of making the industry ‘professional’ is to reduce opacity and present clear laws and regulations for industry participants to abide by that will also assist clients to understand what they may expect. The complexity of regulations leads to volumes of information being provided to clients who have little inclination to read them. Licensees, advisers and clients all want simple documents that provide professional financial solutions without the ‘noise’ of various legal ramifications that may or may not apply to them. Lets bring it all back to basics…
Exactly why I, after 32 years of advising legally on superannuation disclosure, gave it away in 2019, really RG 97 was the finish, and I advised on it, but then ceased completely on all disclosure products, after its rollout. The regime was just by then, ridiculously convoluted. Just impossible to ever be sure you are right and not exposing your PI at sign-off.
If you were doing it for 32 years, maybe you gave it away because you retired………
Well done ALRC, as you can see the mire our ill-informed politicians have created. Suggest all and sundry send this article to Frydenberg and Hume!!
Bullet needs to be bitten right now to bring some sanity to the industry and negate the mental health issues for advisers…November and beyond might be too late for some!!
Great plan. Get a bunch of lawyers to review the work of another bunch of lawyers who created the mess in the first place. They have already acknowledged the problem of overly complex and inconsistent legislative instruments and they way they will fix this will likely be another set of legislative instruments. Another opportunity for lawyers to click over the billable hours while further destroying the financial planning industry. We look forward to their report in a few years time once the majority of financial planners have left the industry.
As they say in the classics…….”No sh#t Sherlock ???”. This is bleating the obvious. Advisers have been trying to communicate this same stuff for years.
As an industry, we’ve been trying to point this out to politicians and bureaucrats for over a decade. FINALLY, they seem to be getting the message. Shame it wasn’t before one third of the advisory force “pulled the pin”!