Australian Law Reform Commissioner and federal court judge Hon. Justice John Middleton has confirmed the ALRC will look at pulling chapter seven of the Corporations Act – which deals with financial products and services – out of the Act altogether as part of the group’s ongoing review into financial services regulation.
After an ALRC webinar presentation that outlined some of the complexities within the Corporations Act, Middleton was asked by ALRC president and fellow federal judge Justice Hon. Sarah Derrington whether chapter seven might be better “as a standalone statute”.
“It’s certainly something that’s on the table for consideration,” Middleton said, before adding that doing so “wasn’t an automatic cure, necessarily,” to the complexity issues that plague the Act.
“This touches on [the] cost benefits of altering legislation and reforms,” he continued. “We have to see really, once the inquiry progresses, the benefits of creating a separate Act.”
Justice Hon. Derrington will be providing insights into the ALRC’s ongoing review at the June 7-8 Professional Planner Licensee Summit in Katoomba.
The Corporations Act has grown from 400,000 to over 800,000 words in is 20-year existence, with chapter seven taking up an outsized portion of the document according to ALRC legal officer Nicholas Simoes da Silva.
“Just about everyone thinks the Corporations Act is too complex and that it’s probably always been too complex,” da Silva explained, adding that it is the second largest Act of parliament and accounts for four per cent of all commonwealth statute law.
“Chapter seven alone, regulating financial services, would be the eleventh or twelfth largest Act of the commonwealth parliament if its stood on its own,” he said.
If part 7.9 of chapter seven was a chapter by itself, da Silva explained, it would be the fifth largest chapter of the Act.
Removing chapter seven would be a giant leap in fulfilling the ALRC’s technical mandate for the review, which is to find ways to simplify the Corporations Act – the framework of financial services regulation.
“If we want people to obey the law, we need to make finding and understanding the law as easy as possible,” da Silva said, noting the “astonishing complexity” of the current framework.
Any move to excise chapter seven would require significant structural and legal upheaval, but that doesn’t mean the idea shouldn’t be approached according to Middleton. “Complexity sometimes is the nature of the beast, but we should try and manage it,” he said.
ALRC members refrained from speculating on where a standalone chapter seven would sit or how its removal would simplify the chapter itself, but de Silva made it clear that cascading rules and conditional statements (ie, those that begin with ‘if’, etc) would be a focal point for the review.
“Unsurprisingly, Chapter 7 sits at the heart of conditional statements,” he said.
He also pointed out the “thousands” of individual relief instruments that have been piled into the Act, the proliferation of guidance documents that “dwarf the size of the primary law” and delegated legislation within the act, which he called “dark law to the blameless traveller”.
Advice in focus
The ALRC was charged with its review in September 2020 to essentially help untangle what financial services minister Jane Hume dubbed the “Gordian knot” of advice regulation.
The Inquiry is part of the Morrison government’s response to the Hayne Royal Commission’s February 2019 final report.
Minter Ellison partner and lawyer Richard Batten said the principles-based nature of the regulatory system would be a likely target of the review.
“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 said, adding that the review could take principles-based regulation “to the next level” by linking principles to prescription.
Shortly thereafter, ALRC special counsel Andrew Godwin said financial advice would play a central role in the ALRC’s thinking during the review.
“Financial advice has a certain prominence partly because of the Hayne royal commission but also because financial planning is a very important area and it continues to excite discussion and debate,” he said.
The ALRC’s review will run for three years and produce three interim reports as well as a final consolidated report in November 2023.