Minter Ellison partner Richard Batten

The Australian Law Reform Commission’s impending review into financial services regulation will not follow the traditional route of past reviews into the sector, with legal and regulatory experts predicting it will focus on the structure and presentation of regulation.

This could have far reaching effects for financial advisers, with everything from tweaks to investor definitions to a thorough unwinding of the current principles-based regulatory regime on the table.

Minter Ellison partner and lawyer Richard Batten says that while the terms of reference for the review are “scant”, it will be about form over substance.

“The focus is really not what we would ordinarily think of as a reform process,” he says, emphasizing that the review will be technical in nature and no policy change recommendations will be come out of it.

The nature of our principles-based regulatory system is a likely target of the review, Batten reckons.

“Principles-based regulation is great – I believe in it – but you have to work out how to apply the principle in a defined situation,” he says. “[Commissioner] Hayne was about making it clear to people what they should be doing.”

Batten says the review could take principles-based regulation “to the next level” by linking principles to prescription. “That could lead to more effective legislative devices,” he adds.

UNSW professor of commercial law and regulation, Pamela Hanrahan, also believes a better link between principles and prescriptive law may be a focus of the review.

“We need to avoid the ‘principles-based’ and ‘black letter law’ debate – which goes nowhere – and see if we can improve the law by providing high-level principles in accordance with which the law is to be interpreted and applied, supplemented by appropriate detail where people need it,” Hanrahan says.

The academic says the Code of Ethics set down by FASEA is a good example of what happens when there isn’t a solid connect between principles and prescriptive guidance.

“If you turn codes, particularly codes of ethics, into legislation they must be precisely formulated and that is exactly what you are trying to avoid,” she says, adding that the “Frankenstein” standards are “neither legislation nor code”.

Don’t hold your breath

The review has three interim reports due, starting from November 2021, before the consolidated review is scheduled for November 2023. According to QMV regulatory consultant Jonathan Steffanoni, the scale of the review could see it drag out a lot longer.

“The first thing that comes to my mind is the rewrite of our income tax laws,” he says.

In 1993 a taskforce was entrusted with the ‘Tax Law Improvement Project’ to rewrite the 1936 Income Tax Assessment Act. It was originally scheduled for three years, but remains incomplete – 27 years later.

“I’m not saying this will be the case here,” Steffanoni says. “A rewrite is a fantastic idea, but it could take a while.”

Lawyer David Jacobsen from Bright Law agrees that the review is a “huge job” and could take more time than anticipated. “When you’re amending the Corporations Act you don’t want to have any more uncertainties or ambiguities or unintended consequences,” he says.

Some of the issues mandated for the review – such as the first interim report’s look into definitions – may need to be addressed separately because certain areas like investor definitions are crying out for earlier reform, Steffanoni says.

“If we’re looking at three years to get the report it could be another year or so to get things drafted,” the consultant says. “I’d be surprised if sophisticated investor definitions wasn’t on the agenda before then, it is possible that there’s intent to address that prior to the completion of this process.”

Tahn Sharpe is a Sydney-based financial services journalist with a background in financial planning. He writes on advice, superannuation, investment, banking and insurance issues, is a certified SMSF Adviser and holds an Advanced Diploma of Financial Planning. Contact at [email protected]
2 comments on “Regulatory reform, but not as you know it”
  1. Aah – where to start! The principles based FASEA code has only just come into play, and needs to be given some time to work. It is at obvious odds with the prescriptive micro-management that ASIC employs in regulating the industry and that needs to be resolved in the immediate future.
    Is a three year+ ALRC review the best solution? As a professional planner at the coal-face drowning in futile, puerile, misguided regulation – I don’t think so.
    But it looks like we are going to have one, so I would suggest the following.

    Undertake a meaningful, informed, cost-benefit analysis for every change being proposed and make it available for scrutiny, and
    Engage with professionals at the coal-face to understand the likely outcomes before legislating or regulating.

    These two steps seem absent in ASIC’s regulation of the industry. Professional planners are not holograms – we are a resource that ASIC has ignored for years with adverse consequences.
    And if we ever wanted a brilliant example of conflicted remuneration – here it is. Lawyers charging fees for years on something that needs urgent resolution.

  2. Avatar Jeremy Wright

    David from Bright Law makes a statement that you don’t want to have any more uncertainties, or ambiguities, or unintended consequences, which is noble.

    However, it was the Legal profession who led us to what is now, an unworkable maze of contradiction and Legal Interpretation, that generates multi-millions of dollars into Lawyers pockets at the expense of all Australians.

    We have a Life Insurance Advice Industry that has now been decimated because of Legislation that was supposed to make advice more affordable, easy to access and understand.

    The exact opposite has occurred, where today, Australians are paying substantially more and APRA have made sure that they will be getting substantially less for their money.

    Financial Planners have been forced to increase their fees to comply with a bigger maze of Legal complexity, which has led to 90 percent of Australians, now no longer able to afford to pay for advice.

    A 3 year time frame for the Tax Law improvement project, that 27 years later is still not complete.

    Is there a common theme here?

    What we have, are a minority of Elitists, who feel that the world cannot continue to turn without their input and when they finally, after years of charging many hundreds of dollars an hour for their master pieces, release their vision of new regulatory splendor to the world, only they can understand it, though even they cannot explain how it will work in the real world, which means, like most Regulation, it fails the “clear and concise” test, which also means it will continue to stymie any opportunity for the Australian economy to rebuild.

    For every productive person, it seems like there is an endless army of consultants and Lawyers peering over their shoulder, stopping them from being able to work effectively and in a cost effective manner.

    When Regulation destroys Business, for NIL BENEFIT to anyone, then why are we continuing down that same path?

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