The Australian Law Reform Commission (ALRC) has released the final interim report within its three-year review of financial services legislation.
Interim Report C explored restructuring and reframing financial services legislation to enhance its navigability and comprehensibility.
Click here to read a timeline and information of the Interim Report A and B.
The existing structure had been identified as “significant sources of unnecessary complexity” within the legislative framework, the ALRC said, which resulted in increased costs for regulated entities and consumers.
As a result, the report aimed to reduce compliance costs and enforcement expenses for consumers and regulators.
Focusing specifically on financial advice, it said the current structure and framing of provisions relating to financial advice in the Corporations Act 2001, specifically in chapter 7, made it hard for advice providers and recipients of financial advice to find the law.
Secondly, it made the law harder to understand by obscuring the broader context and purpose of financial advice provisions. This lack of context meant the law failed to communicate that advice providers are subject to a highly developed and tailored regulatory regime.
“This regime contains fundamental norms and expectations that differ in purpose and substance from the more general provisions regulating financial services. In other words, financial advice is regulated differently to other financial services,” it said.
“The present design of chapter 7 of the Corporations Act does little to help users either find or disregard financial advice provisions. Instead, in searching for the law relating to financial advice, users must read through the substantive provisions of the Act to identify financial advice provisions, or look to ASIC regulatory guidance to address defects in the law’s communicative power.”
To improve this matter, the ALRC proposed the creation of a single legislative chapter that would bring together all provisions that regulate only financial advice.
“[This] would also better reflect the fact that Parliament has, over a number of years, sought to professionalise the financial advice industry, raise standards above those generally applicable to other financial service providers, and improve advice outcomes. Users would find it difficult to identify this context in the current structure of financial advice provisions,” it said.
“For example, the present structure makes it difficult for providers of personal advice to fully appreciate the more exacting standards to which they are held: act in the interests of your client; be educated, skilled, and competent; be ethical; communicate your advice in a manner for which you can be held accountable; and do not accept remuneration that puts your interests in conflict with your client’s interests.
“There are exceptions to several of these norms, such as for remuneration received in relation to general insurance, but being able to see the full range of financial advice provisions makes the overarching norms of conduct more explicit — an outcome viewed as necessary by the financial services royal commission. The present structure of chapter 7 of the Corporations Act suggests that financial advice law is merely an eclectic collection of obligations and prohibitions.”
The ALRC said the final report would take into account recommendations by the Quality of Advice Review.
The report is open for public submissions until 26 July 2023 and a final report is due on 30 November 2023.
