“Change is inevitable, and the disruption it causes often brings both inconvenience and opportunity.”
— Robert Scoble
plus ça change,
Amongst the pathos, hubris and tragedy exposed by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, it was easy to overlook the public epiphanies and underestimate the possibility for real and effective change.
An immediate metamorphosis was unlikely; as critical as Commissioner Hayne was of legislative settings like the ‘safe harbour’ provisions, his final report simply offered seventy-six considered recommendations addressing matters including grandfathered commissions, ongoing fee arrangements, governance, culture and independence.
“So many wires are strung between the fence posts that they inevitably overlap, intersect and leave gaps..”
— Commissioner Kenneth Hayne
In August 2019, the Morrison Government released its Implementation Roadmap outlining how it intended to comprehensively respond to the Royal Commission’s recommendations and restore trust in Australia’s financial system. Although ASIC had made their own start on the recommendations, Commissioner Hayne’s recommendations required a more considered response.
Unfortunately, COVID19 disrupted the Government’s ambitious commitment to take “action on all 76 Royal Commission recommendations and, in a number of key areas, going further. In fact, despite their “unprecedented response” to the Commission and their commitment to implement all the recommendations by 1 July 2020, only piecemeal changes have been enacted with a range of proposed reforms stalled in consultation.
access fsrc final report
When it appeared that the momentum for reform had stalled, in September, 2020, the Hon Christian Porter MP, Attorney-General of Australia announced that the Australian Law Reform Commission (ALRC) had been instructed to consider how, and to what extent, the Government can ‘simplify and rationalise the law’.
Despite reform-fatigue, we should welcome the ALRC’s review of the Corporations Act 2001 and Regulations 2001.
It’s important to appreciate that their inquiry extends beyond the Government’s public commitment to implement the Royal Commission’s recommendations. The referral from the Attorney-General aspires to simplifying the financial services laws and, within the context of existing policy settings, realising an adaptive, efficient and navigable legislative framework for corporations and financial services that is capable of facilitating the emergence of new business models, technologies and practices
Critically, the referral recognises the need to ensure there is meaningful compliance with the substance and intent of the law.
plus c’est la même chose
Pre-election commitments, like drunken hook-ups, seldom generate more than regret, but there may be enough bipartisan support to sustain interest in simplification and reform.
At the very least, it reflects a recognition that previous reforms manifestly failed to achieve substantive change; entities satisfied the letter of the law while ignoring its intent. The uncomfortable reality is that the recurring misconduct identified by Commissioner Hayne simply cannot be resolved by additional disclosure and regulatory nudges. Systemic and substantive reform is required.
“The government is asking the ALRC to undertake a review of the legislative framework for corporations and financial services regulation to identify ways to make it more adaptive, efficient and navigable for consumers and regulated entities. The review will provide a principled blueprint for a more efficient, navigable and adaptive legislative framework for corporations and financial services regulation that would allow industry and consumers to more easily understand their rights, obligations and the intent and effect of the law.”
— Attorney General, Christian Porter, 11 September 2020
Terms of reference
“Simple, clear purpose and principles give rise to complex and intelligent behaviour. Complex rules and regulations give rise to simple and stupid behaviour.”
— Dee Hock
It’s an ambitious review agenda and, to manage its scope, the ALRC will address three distinct stages prior to publishing their consolidated final report by 30 November 2023.
The ALRC’s three-stage review considering how, and to what extent, the Government can ‘simplify and rationalise the law’, will proceed as follows:
Stage 1: Design and use of definitions
Given Licensees’ tendency to focus on forms rather than norms, it’s logical that the ALRC’s initial attention will be directed at the concepts, terms and definition that inform the regulatory framework. In this tranche, the ALRC will consider:
- the circumstances in which it is appropriate for concepts to be defined, consistent with promoting robust regulatory boundaries, understanding and general compliance with the law;
- the appropriate design of legislative definitions; and
- the consistent use of terminology to reflect the same or similar concepts.
ALRC Interim Report (Use of definitions) due 30 November 2021
Stage 2: Legislative design and hierarchy
The ALRC have been asked to review and report on the coherence of the regulatory design and hierarchy of laws, covering primary law provisions, regulations, class orders, and standards. It may be an obtuse instruction, but essentially they have been asked to consider:
- how legislative complexity can be appropriately managed over time;
- how best to maintain regulatory flexibility to clarify technical detail and address atypical or unforeseen circumstances and unintended consequences of regulatory arrangements; and
- how delegated powers should be expressed in legislation, consistent with maintaining an appropriate delegation of legislative authority.
ALRC Interim Report (Regulatory design and legislative hierarchy) due September 2022
Stage 3: Reframing of Chapter 7
Anyone concerned about unnecessary complexity, embedded bureaucracy and unintended consequences should pay particular attention to the ALRC’s consideration of how the provisions contained in Chapter 7 of the Corporations Act 2001 (Cth) and the Corporations Regulations 2001 (Cth) can be reframed, or restructured, to deliver a legislative framework for financial services licensing and regulation that:
- is clearer, coherent and effective;
- ensures that the intent of the law is met;
- gives effect to the fundamental norms of behaviour being pursued; and
- provides an effective framework for conveying how the law applies to consumers and regulated entities and sectors.
ALRC Interim report (Reframing Chapter 7 of the Corporations Act)due 25 August 2023
It’s important to appreciate that the ALRC’s consideration will be informed by, and reflect, a range of other relevant inquiries, reviews and reports including (but not limited to):
- the 2014 Final Report of the Productivity Commission, Access to Justice Arrangements;
- the 2014 Final Report of the Financial System Inquiry;
- the 2015 Final Report of the Australian Government Competition Policy Review;
- the 2017 Report of the Treasury’s ASIC Enforcement Review Taskforce; and
- the 2019 Final Report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
Turn and face the strange
As compliance professionals, we’re naturally optimistic and welcome the opportunity to move the industry beyond formalism and grudging compliance.
We’ve persistently advocated for simplicity, flexibility and for regulators’ recognition of the obvious limitations of disclosure.
Improvement is incremental. Personally, we hope that this review delivers a regulatory regime with less rules but more significant penalties and a framework that supports the emerging profession by prioritising understanding and engagement over disclosure.
The ALRC will consult widely with regulators, industry and other stakeholders and to have regard to existing reports, inquiries and any associated government responses to these including, among others, the Hayne Commission’s Final Report and the government’s response.
We intend to advocate on behalf of our clients so, if you’re interested in contributing to, or reviewing our submissions, please let us know.