Andrew Godwin (left) and Nicholas Simoes da Silva

A simpler legal model, providing financial advisers with clarity over the Corporations Act, the Corporations Regulations, and ASIC instruments is set for submission to Attorney General Mark Dreyfus on September 30.

The second of three interim reports from the Australian Legal Reform Commission (ALRC) to review the current unwieldy 800,000-word Corporations Act and financial services regulation, shows a two-tier model with notional amendments made to the Act since 2001 being placed either in the Act or “down the hierarchy” in rules.

ALRC special counsel Andrew Godwin tells Professional Planner there were few financial product types when the Act was established in 2001 and innovation had changed the landscape since then.

“We are moving into a lot of uncharted waters,” Godwin says. “If you look at things like Buy Now, Pay Later [or] robo-advice, for example, if you look at cryptocurrencies and other classes of crypto assets, and also even moving further into the general corporations area, the use of new business forms such as decentralised autonomous organisations.”

Godwin says the new model will help regulate and provide a basis on which all of these new technologies, business forms and practices can be regulated.

“We think it would make for a much more adaptive, efficient and navigable legislative framework.’’

He says a simplified Corporations Act would still set key obligations, prohibitions, civil penalties and criminal offence provisions, and would set out the regulatory powers the financial markets regulator ASIC has.

“But it also would consolidate and focus much more on setting out the areas or aspects in which either the minister or ASIC has power to make rules,’’ Godwin says. “It is about creating a framework that’s fit for purpose, a framework that is able to serve Australia well going into the future, particularly with the emergence of new types of products and services in the digital age.”

ASIC regulates the conduct of Australian companies, and financial service providers such as banks, life and general insurers and superannuation funds as well as financial advisers.

For an adviser to navigate the law around a new financial product, for example, the new model would provide three places to find information: The Act, a scoping order, and relevant rules, Godwin says.

As noted by ALRC senior legal officer Nicholas Simoes da Silva, “If you wanted to navigate your way through the framework, you’d look at the Act, to identify the key obligations; you’d then look at the scoping order, to identify to what extent either the product service or the particular participant might be subject to the requirements.’’.

“Then to get the details, you’d look at the relevant rules … they’d be organized thematically to make it easy to identify the relevant requirements.”

These rules would then be easier to update in line with product and other innovations, Simoes da Silva says.

Simoes da Silva also says financial advisers currently have a “big challenge” to know if they need to give a Financial Services Guide or a Product Disclosure Statement for a new product and must sift through a lot of ASIC instruments and more than 100,000 words spread across all these documents.