The Australian Law Reform Commission will look to combine differing definitions of financial products and services that are found across the ASIC Act and the Corporations Act after it found “strong support” for the move in its initial consultations with stakeholders.
The move has the potential to fix a foundational flaw in the regulation of advice. While the current definitions cross over extensively, there are several diversions that have compounded complexity and confusion over the years.
In a paper outlining the initial stakeholder views the ALRC encountered in the eight months since it started its three-year review into financial services regulation, it revealed the “emerging consensus” was that locating Chapter 7 of the Corporations Act in a separate piece of legislation would increase navigability and create a clear line of demarcation between the lifecycle of companies and consumer protection.
Alongside this finding, the ALRC now says that if Chapter 7 were to be lifted, it would make sense to combine the separate definitions of financial products and services that exist in the two Acts.
“The issue at the moment is that Part 2 Division 2 of the ASIC Act has its own definition of financial product and financial service,” explains Matt Corrigan, general counsel at the ALRC. “So the application of the consumer protection obligation is slightly different to that of Chapter 7 of the Corporations Act.”
The separate definitions across the two Acts – sections 12BAA and A12BAB of Chapter 7 in the Corps Act and section 763A of the ASIC Act – are largely similar, but they do differ markedly in areas such as contracts of insurance, non-cash payment and incidental products.
Even if Chapter 7 isn’t eventually lifted from the Corporations Act, Corrigan says the ALRC believe there shouldn’t be a separate definition in the ASIC Act and a merge would simplify the concept.
“At the moment you’ve got obligations in the ASIC Act and the Corps Act and we believe it should be in one place,” Corrigan said.
“What we’re looking at doing is creating one definition for financial products and services and the consumer protection currently in the ASIC Act would either be in the new legislation – if that was pursued – or it would be put in Chapter 7.”
While its mandate is to unravel the complexity of financial services regulation via an improved structure, rather than policy, the ALRC freely reveals the policy issues stakeholders have relayed to them as part of the consultation process.
The commission lists ten policy issues in its initial stakeholder views document, including problems with the sophisticated investor definition and the distinction between personal and general advice.
The commission has also heard calls for strategic advice to be separated from product advice, and the “incompatibility” of prescriptive regulation of advisers.
The potential benefits of ditching the current licensing system in favour of individual registration for financial advisers has also been flagged.