Creating a separate financial services law

4 minute read + (PDF download)  15.08.2023 Richard Batten, Eugina Kwon, Luke Mezrani

MinterEllison has submitted a response to the Australian Law Reform Commission’s third interim report - Interim Report C.


Key takeouts


  • Interim Report C focusses on restructuring and reframing Chapter 7 of the Corporations Act to facilitate better user understanding and navigation of the law. 
  • MinterEllison broadly supports the ALRC's proposals, particularly the proposal to make the financial services regime a schedule to the Corporations Act if separate legislation is not possible.
  • However, the new regime should be principles-based and able to stand-alone separate from other parts of the Corporations Act

The Australian Law Reform Commission (ALRC) has released its latest (and last) Interim Report C as part of its review of the legislative framework for corporations and financial services regulation.  Interim Report C builds on reforms proposed in the ALRC's first two Interim Reports (Interim Report A and Interim Report B), which focused on the use of definitions and the coherence of the regulatory design and hierarchy of laws, respectively.  Interim Report C focuses on reframing and restructuring the legislative framework for financial services regulation.  

We have made a submission to the ALRC on its proposals in Interim Report C and this alert discusses those proposals and our submissions on them. 

The current structure of Chapter 7 of the Corporations Act

The ALRC has identified three key problems with the current structure of the financial services regime in Chapter 7 of the Corporations Act, namely:

  • Chapter 7 is anomalous in its current form being more akin to an Act within an Act, on its own longer than all but 9 other pieces of Commonwealth legislation.  It covers too much – not only financial services and products but also financial markets and the transfer of securities.
  • Chapter 7 fails to prioritise key messages because of its poor structure and framing.  This impedes communication of the fundamental norms of behaviour that are being pursued by the legislation.
  • The structure and framing of Chapter 7 makes it difficult for users to find the relevant law as provisions are not grouped or prioritised in a way that helps users navigate and understand the law. 

According to the ALRC, this poor structure and framing directly contributes to the complexity and costs of complying with the law and it provides a poor platform for undertaking future policy reforms.  The ALRC highlights the importance of structure and framing in ensuring the effectiveness of the law, improving ease of compliance and supporting the rule of law by facilitating accessibility.  

A proposed Financial Services Law (FSL)

The ALRC therefore proposes to move Chapter 7 of the Corporations Act (other than the financial markets provisions) and merging it with the consumer protection provisions of the ASIC Act to form a new schedule to the Corporations Act to be known as the 'Financial Services Law' (FSL), similar to the Australian Consumer Law in the Competition and Consumer Act and the National Credit Code in the National Consumer Credit Protection Act.

This is designed to be a clear 'home' and 'one-stop shop' for financial services legislation.  The ALRC  has not proposed a separate Act due to constitutional considerations.  

We support this proposal given the constitutional issues relating to reform of the Corporations Act.  Of course, those issues could be addressed by State and Federal Governments agreeing to create a separate financial services regime and a separate Act would certainly make the law more accessible and easier to deal with.  

A key issue we have raised in our submission is whether consideration of the FSL can be confined to its terms or whether it will need to be interpreted in light of other parts of the Corporations Act as is the normal approach to statutory interpretation.  We believe it will be important to design the FSL so that it can stand alone without the need to consider or refer to other parts of the Corporations Act.  This means that all defined terms used in the FSL should be defined in it.

Proposed structure for the FSL

The ALRC has provided the following illustrative structure of the FSL:

Chapter 1—Introduction and application
Chapter 2—Consumer protections and generally applicable offences
Chapter 3—Obligations of financial services providers
Chapter 4—Disclosure about financial products and financial services
Chapter 5—Financial advice
Chapter 6—Financial services licensees and representatives
Chapter 7—Ministerial and ASIC powers
Chapter 8—Dictionary

Consumer protection 

The ALRC proposes grouping generally applicable consumer protection provisions across the Corporations Act and ASIC Act.  This would involve grouping and consolidating the following provisions into one chapter:

  • the unconscionable conduct and consumer protection provisions in relation to financial services found in Division 2 of Part 2 of the ASIC Act and across Chapter 7 of the Corporations Act;
  • consumer remedies relating to agreements with unlicensed persons in Division 11 of Part 7.6 of the Corporations Act;
  • the design and distribution obligations in Part 7.8A of the Corporations Act; and 
  • aspects of the product intervention powers of ASIC.

One of the more interesting proposals is that ALRC proposes that the requirement to comply with product intervention orders is located in the consumer protection chapter while the provisions relating to the making of product intervention orders should be in a separate chapter for Ministerial and ASIC powers. 

MinterEllison strongly supports consolidating and simplifying the consumer protections provisions in one place in the FSL.  We have however suggested some changes to the structure proposed by the ALRC.  For example, we believe that the hawking prohibition would be better located with other consumer protection provisions.  On the other hand, insurance specific measures may be better located in insurance specific legislation, such as the Insurance Contracts Act.  We also question whether splitting the product intervention provisions in the manner proposed by the ALRC makes sense.

Disclosure

In addition to proposing to group and consolidate provisions relating to disclosure for financial products and financial services, the ALRC proposes to add a new requirement for disclosure documents to be worded and presented 'in a way that promotes understanding of the information'.  

This would be in addition to the current requirement for disclosure documents to be clear, concise and effective.

We believe that it would be better to reformulate an outcome based general disclosure obligation as proposed by the ALRC in Interim Report A (proposal A8) rather than simply adding a new and potentially uncertain requirement to the existing clear, concise and effective standard.

We also question whether it makes sense to put all product and financial services disclosure in one place.  There is a logic to the current structure of including all financial product obligations in one Part 7.9, including product disclosure.  A better outcome would be to replace the current prescriptive regime with a more outcomes-based approach in the FSL and give the regulator the power to make rules to prescribe particular requirements where appropriate.

Implementation and principles for structuring and framing legislation

In order to implement its proposed reforms to financial services legislation, the ALRC proposes that the Australian Government establishes a specifically resourced taskforce dedicated to the implementation of reforms.  

As part of this implementation, and underlying the proposals above, the ALRC proposes working principles when structuring and framing corporations and financial services legislation.  These working principles are:

(a) Provisions should be designed in a way that minimises duplication and overlap (Consolidation).
(b) Related provisions should be proximate to one another (Grouping).
(c) Provisions should have thematic and conceptual coherence (Coherence).
(d) The most significant provisions should precede less important provisions or more technical detail (Prioritisation).
(e) Legislation should be structured to ensure an intuitive flow that reflects the needs of potential users (Intuitive flow).
(f) The structure and framing of legislation should help users develop and maintain mental models that enhance navigability and comprehensibility (Mental models).
(g) Legislation should be as succinct as possible (Succinctness). 

If the proposed Financial Services Law schedule is implemented, the ALRC also proposes that this and any delegated legislation is periodically reviewed by an independent reviewer. 

While we welcome these proposals, we believe that the oversight process should not be limited to 10 yearly reviews of the legislative framework but should extend to oversight of rules as they are made as set out in our submissions on Interim Report B.

Conclusion 

If adopted, the ALRC's proposals will fundamentally change the structure and framing of corporations and financial services laws.  It has the potential to significantly improve the navigability of the law and help users understand the underlying policy objectives pursued by legislation.  However, this will depend on how successfully the proposals are implemented. 

The Final Report for the ALRC's review of the financial services legislative is due for release on 30 November 2023.

You can find our detailed submission to the proposals and questions raised in Interim Report C using the link below. 

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