When last we checked in on the Australian Law Reform Commission’s financial services project, Justice Sarah Derrington was explaining why the Corporations Act is “too big and tries to do too much.”
On the BLS Report podcast, the ALRC president said that over time, “the legislature has been very happy to add to the Corporations Act but not so happy to delete anything from it.” Compounding this problem, she added, were the “extreme” amount of regulations and legislative instruments attached to the Act.
Divide and conquer
In its second interim report, released just over a week ago, the ALRC has proposed a possible solution to this issue. Briefly, it involves “de-cluttering” the Corporations Act to focus on “key obligations and offences”, a separate Scoping Order which would contain exclusions and exemptions – these are currently “spread across the legislative hierarchy” and difficult to find – and consolidated “rulebooks” which contain the sort of prescriptive detail that’s currently embedded in the legislation.
This new model, the ALRC argues in its report, would enable “significant simplification of the Corporations Act, which currently contains large amounts of prescriptive detail.”
Advisers will likely be familiar with the level of prescriptive detail the ALRC is referring to here. As the Commission has previously noted, this kind of detail doesn’t just add to the compliance burden of regulated businesses; it also “[introduces] risks of non-compliance by increasing the complexity and sheer scale of the legislation, thereby making it harder to understand and enforce.”
Clean up Australia
Changing the Act to focus on core obligations – and delegating the details to a separate order and rulebooks – would also bring it more in line with other regulatory regimes that have a similar focus on “technical expertise, flexibility and adaptability,” such as civil aviation, prudential regulation and maritime regulation. The interim report suggests these regulatory frameworks suffer significantly less from the problems mentioned above due to an increased use of delegated legislation.
Obviously, restructuring financial services law in this fashion necessitates a substantial clean-up effort, including the removal of redundant and spent provisions, redundant definitions and unnecessary detail involving document design, the naming of companies and infringement notices. It would also require a proactive effort to prevent future regulatory bloat – as such, the ALRC recommends that ASIC establishes an ongoing program to identify and repeal redundant provisions as well as “prevent the accumulation of such provisions.”
Time is of the essence
Crucially, the ALRC insists on this task being undertaken sooner rather than later. “In many respects,” the report explains, “this is the most critical Interim Report and comes at an important juncture in the inquiry … As significant and frequent amendments to the law continue to be made, the level of complexity will only continue to grow in coming years.
“Consequently, the sooner reforms can be made to the regulatory architecture, the easier they will be to implement. Conversely, the longer that the existing ad hoc legislative design choices remain entrenched, the more difficult, time-consuming, and expensive it will become to untangle the complexity that inevitably accretes.”
This concern isn’t purely theoretical – as Justice Derrington pointed out when the second interim report was released, the Corporations Act has grown by 597 pages since the ALRC’s inquiry commenced back in September 2020.
Put another way, that’s over five pages being added to the Act per week. One wonders how much bigger it will get before action is taken.
