What can Australia learn from UK financial services law?
Australian financial services legislation can draw inspiration from the UK framework, including its strength of being more easily navigable.
Appearing in a video interview with the Australian Law Reform Commission (ALRC), Mark Steward, a member of the ALRC’s Advisory Committee for the Inquiry into Financial Services Legislation, shared his insights from a perspective at the both international and comparative, as well as his experiences of work undertaken as Director of Market Enforcement and Supervision for the Financial Conduct Authority (FCA) in the UK.
The FCA was the UK’s financial services, securities and markets regulator, regulating the activities of around 51,000 businesses. Unlike the Australian Securities and Investments Commission (ASIC), the FCA also had prudential oversight responsibility for these companies.
Emphasizing the need for the ALRC’s Financial Services Legislation Review to seek to make financial legislation more easily navigable and simplified, Steward highlighted the potential problems that could arise from complex legislation.
“The complexity of legislation is a real problem and if what is required by legislation is too difficult to understand or can only be understood by the high priests of the subject, then the intent and purpose of the law is bound to be frustrated. “, he said.
“Compliance will be more difficult, and non-compliance and misunderstanding violations will be more prevalent.”
Steward said airworthiness was an important way to address complexity, noting that a review also shouldn’t oversimplify legislation “because what we’re dealing with is inherently complex.”
One of the strengths of the British system was that there were overriding principles that focused on results rather than principles.
“The UK model of financial services starts with overriding legislation that sets out the main statutory objectives that the regulator is supposed to strive for, and the statutory powers that the regulator needs to be able to do those things, from oversight to investigation. to take action.
“In the UK, the statutory objectives are actually presented as three overriding objectives to protect consumers in order to enhance financial stability, market integrity and promote effective competition. So these things sort of replace everything else.
“And then, within the legislation, we have delegated regulatory powers which then allow us to give effect to the content of what is required in the regulations to achieve these things.
“So our rules start with 11 general principles and these general principles of conduct include the obligation to act honestly, to act diligently to treat customers fairly, to manage conflicts of interest, etc.
In the UK system, the FCA has published advice on the 11 general rules in a handbook to help people understand the legislation.
“The guidelines are really important because they set out, in narrative form, how we think businesses should operate in practice to comply with these rules. And while the advice is not mandatory… the general principles are mandatory.
“Tips aren’t mandatory – they’re designed to be useful. But of course, if a company complies with what is laid out in the guidelines, that creates a safe harbor…a great incentive to follow the guidelines.
“So you have something that is a combination, in a sense, of legislation imposed by the regulator as a legislator, plus non-legislative tools like wayfinding and search tools for navigating a hierarchy black letters, statutory laws, general principles, then some rules and advice tailored to help you comply.
“It all creates something that can be described the way I just described it. It doesn’t shy away from complexity and it certainly doesn’t shy away from length.
“We often joke that if we were to… print out what’s in the manual, we’d have something way over six feet tall.
“So it’s a huge job. It’s long, it’s complex, but it’s navigable and you don’t need to be a high priest to navigate it.