Last month, the Australian Law Reform Commission (ALRC) report, Financial Services Legislation: Interim Report B, was tabled — and the commission is now seeking submissions to base a further interim report and the final report.

The escalating complexity of corporate and financial services legislation is demonstrated by the continued growth of the Corporations Act, which is currently a whopping 3,700 pages long. Since late 2020, when the ALRC’s inquiry began, 597 pages have been added.

The focus of Interim Report B is primarily related to the design choices relevant to determining where material is located within the legislative hierarchy, which makes regulation, and how the content of regulation is organised and structured.

“These issues are closely related to the aim of achieving an ‘adaptive, efficient and navigable legislative framework’,” the report stated.

“While such topics are relatively technical in nature, the ALRC’s view is that the legislative hierarchy is key to unlocking the byzantine complexity that currently afflicts corporations and financial services laws in Australia.”

The report sets out a legislative model for simplifying the regulation of financial services, and potentially also other areas of corporations law, aimed at producing more user-friendly legislation.

In conversation with Lawyers Weekly, ALRC principal legal officer (A/g) Christopher Ash said that there were numerous benefits to cutting down the length of the Corporations Act.

VIEW ALL

“The Corporations Act is the second-longest Commonwealth Act. It currently contains almost 1 million words, takes up seven volumes (as seven separate PDF documents) on the Federal Register of Legislation, and its length continues to steadily increase. A key aim of the ALRC’s proposals is to make the law more navigable for readers — that is, easier to find one’s way around. Making the Corporations Act shorter is one way to make it more navigable,” he explained.

“A shorter act should also be easier to understand by ensuring that fundamental obligations are not obscured by overly prescriptive detail. The ALRC’s new prototype legislation shows how some particularly voluminous parts of the Corporations Act can be shortened by 66 per cent — from approximately 36,000 words to around 12,000 words.”

Whilst prescriptive detail is currently spread across the act, regulations and hundreds of legislative instruments, the ALRC’s proposed legislative model finds the right “home” for these details, which are often hard to find within the act.

“Instead, detail that tailors regulatory regimes for particular products and industry sectors should be moved to thematically organised ‘rulebooks’ (delegated legislation). In addition, details that help to determine the scope of the act — like exclusions and class exemptions — should appear in one place, which the ALRC has called a ‘Scoping Order’ (also delegated legislation),” Mr Ash added.  

“Another key element of the proposed model is that it eliminates the need for ‘notional amendments’ to the law, without losing any of the flexibility of the existing law. Currently, notional amendments in delegated legislation change the effect of the act and regulations, but there is no indication on the face of the act or regulations that they have been amended, which is problematic for a number of reasons. Instead, under the ALRC’s model, amendments to the proposed rulebooks and Scoping Order would be incorporated into the text of those documents.”

Therefore, the argument for these laws to be simplified is an extremely strong one, Mr Ash submitted.

“The Financial Services Royal Commission made a strong case for simplifying the law so that fundamental obligations can be made clearer and the law’s intent can be met. Simpler laws should be less burdensome for business and for consumers,” he said.

“The royal commission also observed that ‘the very size of the [simplification] task shows why it must be tackled’. Since the ALRC’s inquiry commenced, the Corporations Act has grown by about 600 pages. The fact the task is only getting larger shows why it must be tackled now.”

The ALRC is seeking submissions on the report until the end of this month, particularly in relation to reform relating to the proposed legislative model and improvements to the design of legislation and questions in relation to draft guidance on the delegation of legislative power and the use of evidential provisions; with submissions to inform the ultimate recommendations in the ALRC’s final report, due in 2023.

“Even experienced practitioners have told the ALRC they worry about ‘missing something’ when advising on chapter 7 of the Corporations Act in particular (regulation of financial services) because the relevant material is so diffuse and difficult to find.

“This ALRC inquiry is an opportunity for lawyers to contribute to significant improvements in the law, for example, by reducing the number of places a reader needs to look to find the authoritative law. Input from legal practitioners is crucial to ensure that the ALRC’s proposed model can be refined to make the law more user-friendly and workable in practice,” Mr Ash said.

“Legislative complexity, particularly in the Corporations Act, is an important issue for all lawyers for several reasons. In addition, the ALRC’s data analysis has shown that many other Commonwealth acts may also be unnecessarily complex. Much of what the ALRC has said about legislative design has the potential to help to improve legislation more generally.”

In addition to submissions, “vocal support” from legal practitioners will “greatly increase” the chances of significant improvements to the act, added Mr Ash.

“The ALRC has been working closely with the Treasury and the Australian Securities and Investments Commission (ASIC) in particular, to understand the resourcing implications and practical considerations regarding implementation of the reforms being proposed. The ALRC has also produced prototype legislation, available on its website, which illustrates how the proposed model would be easier for practitioners and clients to use,” he said.

“[The] government has already taken steps towards implementing some recommendations from the ALRC’s Interim Report A (such as this recent consultation on draft legislation), and the recently released Interim Report B contains a further six recommendations that could be implemented before the current inquiry concludes. More generally, the ALRC’s report will hopefully bring about a renewed focus on legislative design and how legislation can be made more user-friendly.”