The Australian Law Reform Commission (ALRC’s) has proposed reforms to rename ‘general advice’ and ‘personal advice’, and has posed questions about whether the ‘retail client’ definition should be amended.
The ALRC released its interim report into the complexity in Commonwealth legislation regulating corporations and financial services which said the Corporations Act had almost doubled in size over 20 years and now had over 13,000 pages.
The ALRC said its task was to ensure the law was fit for purpose.
On the definition of financial product advice, the ALRC made proposals to simplify, clarify, and improve the navigability of concepts.
The report proposed a number of potential reforms, including to:
- Distinguish more clearly between different regulatory regimes by decoupling the concepts of ‘personal advice’ and ‘financial service’;
- Eliminate an unnecessary and unhelpful intermediary concept by removing the defined term ‘financial product advice’;
- Convey more clearly the subject of regulation by renaming the concepts of ‘general advice’ and ‘personal advice’; and
- Simplify the structure of exemptions for ‘financial product advice’.
The proposal on renaming the two forms of advice stated: “Section 766B of the Corporations Act 2001 (Cth) should be amended to replace the term ‘general advice’ with a term that corresponds intuitively with the substance of the definition”.
It noted these reforms could have implications when considering broader reforms of the regulation of financial advice relating to:
- Individual licensing of financial advisers and moves towards greater ‘professionalisation’ of the sector; and
- Clarifying the regulatory perimeters of personal advice and general advice.
The report also examined the definitions of ‘retail client’ and ‘wholesale client’ and questioned whether the definition of retail client should be amended to:
- Achieve greater consistency with the fundamental policy settings; and
- Simplify the application of the definition of retail client to general insurance products, superannuation products, retirement savings account (RSA) products, and traditional trustee company services; or
- Otherwise achieve greater clarity and coherence.
“The definition of ‘retail client’ is subject to various exclusions. Ongoing debate about the appropriateness of these exclusions casts some doubt on the terms used, the definitions of those terms, and whether the definitions are the best means of giving effect to legislative intent,” it said.
The commission sought feedback on 16 proposals and eight questions for reform and submissions were open until 25 February, 2022.