Last week the Australian Law Reform Commission (ALRC) report, Financial Services Legislation: Interim Report C, was tabled – and the commission is now seeking submissions to base a further interim report and the final report.
Interim Report C contains recommendations, proposals, and questions in relation to the reform of corporations and financial services legislation.
Specifically, the ALRC suggests restructuring and reframing provisions concerning financial advice in the Corporations Act 2001 (Corporations Act).
Namely, under a chapter dedicated to financial advice, the ALRC proposes creating a dedicated chapter for financial advice to consolidate relevant provisions, making it easier for users to locate and navigate the applicable laws.
“Proposal C6 would see the creation of a single legislative chapter, bringing together all provisions that only regulate financial advice. This restructure seeks to reflect the needs and expectations of users of the law, and thereby enable the law to communicate more effectively,” the report reads.
The ALRC emphasises the importance of avoiding the “curse of knowledge” and ensuring that when it comes to new or infrequent users, the law should not assume any prior knowledge regarding the application of provisions such as ‘conflicted remuneration’ or ‘best interests duty’ to specific types of financial advice.
“The law’s structure should communicate how it applies to specific persons, services, and circumstances”.
Dissecting Chapter 7 of the Corporations Act, the ALRC said that the present design of this chapter does little to help users either find or disregard financial advice provisions.
Instead, it noted, in searching for the law relating to financial advice, “users must read through the substantive provisions of the Act to identify financial advice provisions, or look to ASIC regulatory guidance to address defects in the law’s communicative power”.
Financial advice and planning associations, including the SMSFA and the FPA, support this assessment, noting the challenges faced by those operating within the legal framework.
Namely, in a recent joint submission they said: “finding provisions relevant to financial advice with absolute certainty as to the accuracy of the provision is extremely problematic for those operating under the legal framework”.
Moreover, the ALRC explained: “Provisions regulating financial advice, and specific types of advice, are spread across Chapter 7 of the Corporations Act, with no hints as to where these provisions may be found”.
Given this complexity, the ALRC assessed “the law fails to communicate that advice providers are subject to a highly developed and tailored regulatory regime”.
“The fragmentary nature of financial advice provisions obscures the fact that Parliament has, over a number of years, sought to professionalise the financial advice industry, raise standards above those generally applicable to other financial service providers, and improve advice outcomes,” the interim report said.
“For example, the present structure makes it difficult for providers of personal advice to fully appreciate the more exacting standards to which they are held: act in the interests of your client; be educated, skilled, and competent; be ethical; communicate your advice in a manner for which you can be held accountable; and do not accept remuneration that puts your interests in conflict with your client’s interests,” it continued.
The ALRC said its final report will consider recommendations made by the Quality of Advice Review.
The interim report is open for consultation until 26 July.
