The legislation governing Australia’s financial services industry is a tangled mess, according to an Australian Law Reform Commission final report, which includes a recommendation for a revamped legislative framework for the financial services sector.
A statement from the ALRC says the legislation governing the financial services industry is “…a tangled mess – difficult to navigate, costly to comply with, and unnecessarily difficult to enforce.”
It says that judges have described the current laws as being like ‘porridge’, ‘tortuous’, ‘treacherous’, and ‘labyrinthine’ and others have described the legislation as ‘broken’.
The commission says complexity in the existing legislation is not an isolated problem — it costs businesses, consumers, investors, and the economy at large.
In it’s report Confronting Complexity: Reforming Corporations and Financial Services Legislation, which was tabled in Parliament last week, the ALRC has made 58 recommendations to simplify the law, including a revamped legislative framework for the financial services sector.
It says these reforms aim to reduce costs for service providers and consumers, improve productivity by reducing complexity, and provide clarity around compliance requirements and enforcement.
Thirteen recommendations made during the Inquiry have already been implemented, in full or in part, by legislation passed during 2023.
Recommendations in the Final Report include:
- Redesigning financial services legislation to give it a clear home and identity as the ‘Financial Services Law,’ making it easier and less costly to find, navigate, and understand
- Ending the use of almost invisible notional amendments that make the law deeply inaccessible, and instead using thematic, consolidated rulebooks to provide flexibility for regulating particular products, persons, services, or circumstances
- Making it easier to tell when something is a ‘financial product’ or ‘financial service’ by introducing a single, simplified definition of both terms
- Making offence and penalty provisions less complex and more obvious by consolidating them into a smaller number of provisions that cover the same conduct, making them easier to identify, and making the consequences of breach clear on the face of the law
The commission says the report follows on from the findings of the Banking Royal Commission in 2019 that exposed the deficiencies of the current legal infrastructure.
“Complexity costs consumers not only in the expenses that are passed on by financial services providers, but by failing to protect them from misconduct.”
It notes the Royal Commission clearly demonstrated the economic and human costs of non-compliance with the law. “The ALRC’s reforms would strengthen consumer protection substantially and reduce costs for business by making the law simpler to comply with and easier to enforce.”
Justice Mordy Bromberg, President of the ALRC, says Australia’s laws governing financial services “…are a confusing maze and need to be overhauled.”
He says the reforms outlined in the report “…will make these laws easier to understand and navigate, drive down the costs associated with complying with the law, and make it easier for consumers to understand and enforce their rights.”
He adds these laws “…provide the legal and economic infrastructure of the financial services industry. The reforms we’re proposing are broadly supported by stakeholders and if implemented will see substantial improvements for both consumers and business.”
Footnote – Longer than War and Peace
In its 68-page summary report the ALRC notes that since 2001, the Corporations Act has almost doubled in length to more than 4,000 pages and over 800,000 words.
And a footnote puts that into context.
“By way of comparison, this is longer than the novels War and Peace by Leo Tolstoy (approximately 580,000 words) and The Lord of the Rings by JRR Tolkien (approximately 550,000 words). While very few users, if any, would ever read the Corporations Act from start to finish, these comparisons help to give an impression of the scale of the Corporations Act.”
It also notes that at 265,000 words, Chapter 7 of the Corporations Act is similar in length to the novel Ulysses by James Joyce.
The tangled mess of the financial services industry is only get more tangled and messy with the ALRC’s 58 more recommendations. The increased compliance and regulations that have been introduced by the governments and bureaucrats over the years have just made it more difficult for advisers to do their jobs, which is “to serve their client’s needs.” Advisers provide money when clients die so all debts are cleared; “No debt should last longer than the person who created it”. Advisers help plan to provide money when clients live too long in retirement, so they are self sufficient, And finally the third hazard is to provide money to clients if they are disabled, sick and cannot work or suffer a critical illness or trauma. Advisers help provide money to their clients when needed most. It’s not rocket science is it?
The SOAs were the scourge of the industry which the majority of clients never read, and the proof of that is that the bureaucrats tell the industry now that SOAS are not required anymore. I remember when SOAS were in their infancy many years ago when a very reputable adviser had his name splashed all over the news/media because his office failed to do 3 SOAs for people who walked into his office and wanted to change their super to another company. Now SOAS are gone. All that drama, anxiety and hurt for what? Something the industry knew wasn’t necessary and advised the government accordingly. But they knew best!!!
Who could forget FASEA which decimated the industry where the exam questions had very little to do with giving advice in life insurances and super and retirement planning. Then the government scrapped the FASEA board after 3 years. Another debacle in our industry, and frankly we can go on and on, and just look at the numerous changes to super since its inception, the last one by this government only in the last 12 months to tax people who saved all their lives to have sufficient money in retirement so they are not dependent on the government.
Every new government review to redesign financial services to make it simpler and easier to follow has resulted in more complexity making it tougher for licensees and advisers to navigate through. Just look at their record. My prediction is the same will happen with this new ALRC review with its 58 more recommendations.
I’d love to know what other advisers think!
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