The pain of fixing the Corporations Act will be significant, according to Australian Law Reform Commission president Justice Sarah Derrington, and the organisation has begun outlining the spectrum of options based on the explicit pain factor to the government.
As part of its review into financial services legislation, the ALRC is not tasked with recommending policy changes but instead is instructed to create a more navigable framework of legislation with the aim of ultimately simplifying the law for industry.
Speaking at the Stockbrokers and Investment Advisers Association Conference this week, Derrington said it’s difficult to know what level of pain the government is prepared to endure because it is a different administration from the one that gave them the initial terms of reference.
“I’m not yet in a position to know what the attitude of the incoming government is going to be. It’s a complex system that’s been embedded now for 20 years. The pain of moving away from it will be significant.”
Derrington said the ALRC is aware any reform is going to be unpalatable and they have begun charting a range of options to government, “from least painful to unbearable”.
“Least painful looks like simply using technological solutions to the federal register of legislation to make things clearer and more easily navigable. I think if we did that people will be disappointed but that is an option. Unbearable is scrapping the whole thing and redrafting from scratch.”
There’s not much appetite for the latter option, Derrington said, and she anticipates the final decision will land somewhere in the middle.
“We’ve tried to entice economists to try and cost the options; that’s proving extremely challenging but we are trying to get proper economic modelling of at least some of the proposals.”
Complicating the ALRC review is the concurrent Quality of Advice Review, but the team previously stated they are currently engaging with Michelle Levy’s team on overlapping issues like the definition of financial product advice.
Highlighting the absurdity of regulatory costs in Australia, Derrington noted a Department of Finance report which revealed Australia spends more on its financial sector than the UK.
“That suggests some pain is overdue given the relative size of our financial markets. It is absurd the regulatory costs here exceed those of the UK.”
CoreData founder Andrew Inwood said it’s well-known the UK is around five years ahead of Australia in terms of development of their industry.
“I was intrigued to hear their costs are lower than Australia given I know the size of their operation and what they do over there.”
Inwood says the UK operating model is less complex than what is offered in Australia.
“Real advice and real fluidity of what’s going on and the relationship with the market has changed fundamentally. They’re not really in the business of deep advice and deep relationships. The vast majority of the work is product sales. We’re in a different state and whether we move to that is a decision for the markets and a whole bunch of other people.”