Legal academics researching the efficacy of financial services law believe the development of the Corporations Act has been hamstrung by reactive policy, which has led to ineffective and overly complex regulation characterised by “attractive prophylactic” laws and “shrill” legislature.
Speaking on a recent panel hosted by the Australian Law Reform Commission, which is in the middle of a three-year study into how the complexity of financial services regulation can be unravelled, UNSW associate professor Scott Donald explained how political expediency in times of crisis is leading to legislation that is reactionary and ill-considered.
“The purpose of the legislature is increasingly shrill and urgent,” Donald said. “The political exigencies of responding to successive scandals and the publicity around those has overridden a more principled development of the regulatory regimes.”
A similar tone was taken by Samuel Walpole, a barrister who has previously acted as a consultant at the ALRC, who noted that statutory reforms such as FOFA “all seem to have sort of come out of particular scandals or evolutions in industry, or some sort of reactive event.”
General law seems to be an “attractive prophylactic” to policymakers as a way of dealing with scandals, Walpole commented. Unfortunately, when the ideals of general law get translated into statutory norms the context is often lost, he says.
“Context matters,” he said. “The way some of those statutory obligations has been enacted actually doesn’t achieve what was perhaps sought in the sort of general open textured standard of fiduciary law.”
Choose your own adventure
The ALRC has a daunting task – to assess how the Corporations Act could be made less complex, more efficient and more navigable for market participants – but it hasn’t been afraid to make some bold statements, including the possibility that Chapter 7 could be excised from the Act entirely, which ALRC President Hon. Justice Sarah Derrington said would provide a clear line of demarcation between the lifecycle of companies and consumer protections.
Delivering a short keynote on the panel, Melbourne Law School associate professor Rosemary Langford extended on one of the ALRC’s earliest findings – that there is way too much detail and complexity in the Corporations Act.
“We might assume that greater detail leads to greater clarity and easier compliance, however, as we’ve seen in the era of corporations and financial services regulation, detail actually often leads to complexity and the need to recognise exceptions and qualifications,” Langford said, before using an example familiar to financial advisers.
“So what initially began as a principles based approach can subsequently turn into a framework that’s overloaded with exceptions and safe harbours, and we can point to the framework governing the best interest duty of financial advisers as an example.”
Things tend to get cluttered over time in our day-to-day lives, Langford went on, and financial services law is no exception.
“The Corporations Act has been reformed many, many times over the years,” she said. “Clutter manifests itself at each level of the legislative hierarchy, namely primary legislation, regulations and legislative instruments, and also the overlap that exists between each level.”
Langford noted that the much-maligned Corporations Act has “served us well” over the years, despite its length and complexity leading to some colourful characterisations.
“Academics have described the Corporations Act, and I quote, as ‘unlovely and unloved, obese, economically burdensome, inconsistent and conceptually troubled’,” she said.
ALRC legal officer Phoebe Tapley added that the proliferation of delegated legislation in the Act makes navigation less than straightforward.
“I think the result of these piecemeal modifications across the Act, the regulations and ASIC instruments, is that navigating the product disclosure requirements… is a bit like a Choose Your Own Adventure novel,” Tapley said.