According to Justice Sarah Derrington, any concerns in the financial services industry about the costs involved in overhauling the Corporations Act and associated regulations should be tempered by the potential for significant savings in the long run.
The Australian Law Reform Commission (ALRC) president recently spoke with the hosts of the BLS Report podcast, Pamela Hanrahan and John Keeves, about the challenges the ALRC has encountered while reviewing the Corporations Act. In that interview, she said the major issue with the current legislation is that it's "too big and tries to do too much," which is partly attributable to "20 years of accretion in the regulatory regime."
"It seems the legislature has been very happy to add to the Corporations Act but not so happy to delete anything from it," she added.
This problem is further compounded by the vast amount of regulations and legislative instruments attached to the Act, which Derrington described as "extreme". She said that in the ALRC's data set, "we found 1,200 notional amendments, the vast majority of which are in relation to Chapter 7."
We've previously discussed the ALRC's project to examine the full chain of interdependencies and supplementary legislation connected to the Corporations Act, which includes the ASIC Act, the SIS Act, the Life Insurance Act, various state and territory laws and regulatory settings implemented by ASIC, APRA and the RBA. In its interim report, the law reform body explained that the Corps Act has over 14,500 internal cross-references, meaning "readers of the Act can be led through a lengthy maze of provisions in seeking answers to even ostensibly basic questions like whether a particular product is a 'financial product.'"
The ALRC noted at the time that addressing this complexity will require more than just "tidying up" existing legislation. Instead, the underlying structures and principles of the law will need to be revisited.
The problem with this, of course, is that entrenched compliance processes will need to change accordingly - and that will inevitably involve costs.
Returning to the interview, Derrington told the hosts: "The question, ultimately, is whether the Government to whom we make these recommendations is willing to accept that the pain that will inevitably be felt through transition costs will be for the best in the long run for future long term gains."
She admitted that at this stage, the ALRC has yet to "make the case for [embarking] on a process that is going to cause pain to stakeholders," but argued that there is "unanimous agreement" that something needs to change. She said that nearly all industry stakeholders agree that the Corporations Act is "complex, difficult to navigate and unwieldy, and that its complexity causes increased costs."
Because of this, the ALRC intends to create a "detailed staging plan" for implementing necessary changes "with the least possible cost to the industry."
We'll update you as and when that plan emerges.
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