The President of the ALRC, the Hon. Judge Sarah Derrington

Legal academics who study the effectiveness of financial services law believe that the development of the Corporations Act has been hampered by reactive policy, which has led to ineffective and overly complex regulation characterized by ‘attractive prophylactic’ laws and a legislature. “Arising”.

Speaking at a recent panel hosted by the Australian Law Reform Commission, which is in the midst of a three-year study on how the complexity of financial services regulation can be unraveled, Associate Professor of UNSW Scott Donald explained how political expediency in times of crisis results in reactionary and thoughtless legislation.

“The goal of the legislature is increasingly garish and urgent,” Donald said. “The political demands of responding to successive scandals and the publicity surrounding them have taken precedence over a more principled development of regulatory regimes. “

A similar tone was adopted by Samuel Walpole, a lawyer who previously acted as a consultant to the ALRC, who noted that statutory reforms such as FOFA “all appear to have stemmed from particular scandals or developments in the industry, or some kind of reactive event.

The general law appears to be an “attractive prophylaxis” for policymakers as a means of dealing with scandals, commented Walpole. Unfortunately, when the ideals of general law are translated into statutory norms, context is often lost, he says.

“Context matters,” he said. “The way some of these statutory obligations have been enacted does not in fact achieve what was perhaps sought in the kind of open and textured general standard of fiduciary law. “

Choose your own adventure

The ALRC has an uphill task – to assess how the Corporations Act could be made less complex, more efficient and more navigable for market participants – but it has not been afraid to make bold statements, including the possibility that Chapter 7 could be deleted from the law entirely, that the President of the ALRC, the Hon. Judge Sarah Derrington said it would provide a clear dividing line between the business lifecycle and consumer protection.

Delivering a brief speech on the panel, Melbourne Law School Associate Professor Rosemary Langford explained one of the ALRC’s early findings – that there is too much detail and complexity in the Corporations. Act.

“We might assume that more detail leads to greater clarity and easier compliance, however, as we’ve seen in the age of business and financial services regulation, the details often lead to complexity. and the need to recognize exceptions and qualifications, ”Langford said. , before using an example familiar to financial advisers.

“So what started out as a principled approach can eventually turn into a framework overloaded with exceptions and havens, and we can cite as an example the framework governing the best interests duty of financial advisers. “

Things tend to get cluttered over time in our day-to-day lives, Langford continued, and the Financial Services Act is no exception.

“The Corporations Act has been reformed many times over the years,” she said. “The clutter manifests itself at every level of the legislative hierarchy, namely primary legislation, regulations and legislative instruments, as well as 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 colorful characterizations.

“Academics have described the Corporations Act, and I quote, as’ unpleasant and unloved, obese, economically heavy, inconsistent and conceptually troubled,” she said.

ALRC lawyer Phoebe Tapley added that the proliferation of delegated legislation in statute makes navigation less than simple.

“I think the result of these piecemeal changes in law, regulations and ASIC instruments, is that navigating product disclosure requirements… is kind of like a Choose Your Own Adventure novel,” Tapley said. .