The existing legislation was described as a "tangled mess"
The Australian Law Reform Commission (ALRC) has released its final report on Australia's financial services legislation.
The report, titled Confronting Complexity: Reforming Corporations and Financial Services Legislation, was tabled in parliament and proposed substantial reforms in the existing legal framework.
The report found that the legislation governing Australia's financial services industry is a "tangled mess — difficult to navigate, costly to comply with, and unnecessarily difficult to enforce." Judges have previously characterised the laws as "porridge," "tortuous," "treacherous," and "labyrinthine," with some even deeming them "broken." The ALRC identified this complexity as a pervasive problem, costing various stakeholders and the economy.
The crux of the ALRC's recommendations lay in simplifying the law to reduce costs for service providers and consumers, enhance productivity by minimising complexity, and establish clarity in compliance requirements and enforcement. Thirteen of the 58 recommendations have already been partially or fully implemented through legislation passed in 2023.
Key recommendations from the final report included:
- Redesigning financial services legislation under the "Financial Services Law" banner for easy accessibility and understanding.
- Abandoning invisible notional amendments favouring thematic, consolidated rulebooks to enhance flexibility in regulating specific products, persons, services, or circumstances.
- Introducing a single, simplified definition for "financial product" and "financial service" to streamline categorisation.
- Consolidating and simplifying offence and penalty provisions, making them more transparent and identifiable.
The ALRC's recommendations responded to the deficiencies exposed by the Royal Commission into Misconduct in the Banking, Superannuation, and Financial Services Industry in 2019. It emphasised that the existing legal infrastructure not only incurs costs for consumers but fails to adequately protect them from misconduct, as demonstrated by the Royal Commission's findings.
"Australia's laws governing financial services are a confusing maze and need to be overhauled," said Justice Mordy Bromberg, president of the ALRC. "The reforms outlined in this report will make these laws easier to understand and navigate, drive down the costs associated with complying with the law, and make it easier for consumers to understand and enforce their rights."